Bangladesh: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh

International Monetary Fund. Asia and Pacific Dept

doi:10.5089/9798400201943.002.A001

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International Monetary Fund. Asia and Pacific Dept

International Monetary Fund. Asia and Pacific Dept
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Publication Date:: 07 Mar 2022

eISBN:: 9798400201943

ISBN:: 9798400201943

Language:: English

Keywords:: BB independence; policy space; return on assets; Bangladesh authority; poverty rate; Loans; cash reserves; BB's independence

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1. Bangladesh has made substantial progress in its first 50 years of independence. From being one of the poorest nations in 1971, Bangladesh successfully met the UN criteria to graduate from the category of Least Developed Countries (LDC) in February 2021.1 Since 2010, per capita real GDP growth, averaging 5 percent annually, has resulted in a steady decline in poverty, with increasing access to education and healthcare (Figure 1). Following an export-oriented development strategy, Bangladesh has successfully transformed to a more manufacturing-based economy. Macroeconomic policies have been successful in keeping inflation stable, debt-to-GDP ratio low, and external buffers adequate.

Abstract

Context

1. Bangladesh has made substantial progress in its first 50 years of independence. From being one of the poorest nations in 1971, Bangladesh successfully met the UN criteria to graduate from the category of Least Developed Countries (LDC) in February 2021.^¹ Since 2010, per capita real GDP growth, averaging 5 percent annually, has resulted in a steady decline in poverty, with increasing access to education and healthcare (Figure 1). Following an export-oriented development strategy, Bangladesh has successfully transformed to a more manufacturing-based economy. Macroeconomic policies have been successful in keeping inflation stable, debt-to-GDP ratio low, and external buffers adequate.

2. The country’s aspiration to reach upper-middle income status by 2031 requires building on successes and addressing structural issues. Despite significant progress, job creation has been slowing, inequality has been rising, and poverty reduction has been slower than during the previous decade. Lack of education and skills remain the main hurdle for transiting into the formal economy. Supply bottlenecks, especially in transport infrastructure, are constraining growth. With LDC graduation, Bangladesh will gradually lose access to concessional financing (nearly half of total external financing in 2018) and preferential trade treatments, which have played a key role in boosting export competitiveness.^² As envisaged in the 8^th Five-Year Plan (FYP), sustaining high pro-poor growth (above 8 percent) to reach upper-middle income status requires, among others, developing new growth engines and increasing productivity to create decent jobs for an estimated 2.2 million job market entrants annually; bridging infrastructure gaps; investing in human capital; and addressing climate vulnerabilities. Enhancing productive investments to achieve these goals will require mobilizing domestic revenues and attracting private investment by strengthening governance, improving the investment climate, and modernizing policy frameworks.

Covid-19 Impact and Policy Response

3. The authorities reacted quickly and decisively to address the economic fallout of the pandemic. In response to the several waves of the pandemic, the authorities imposed multiple nation-wide lockdowns (March 26-May 30, 2020 and April 14-August 10, 2021). The second lockdown exempted the ready-made garment (RMG) sector and allowed for limited transportation. To curb the spike in cases in early 2022, some less stringent restrictions were introduced. Entering the crisis with macroeconomic stability, the authorities announced support packages worth Tk 1 trillion in the form of wage support, working capital loans and social assistance. This was gradually scaled up to Tk1.9 trillion (US$22 billion or 6 percent of GDP) (Annex II), by curtailing non-priority current spending, and suspending low-priority capital projects.

4. Vaccination is catching up despite initial constraints due to supply shortages. The authorities moved swiftly to secure vaccine financing from development partners and allocated ample funds for vaccine-related spending. The national COVID-19 vaccination strategy, kickstarted in early January 2021, stalled due to significant global vaccine supply shortages between April and June. Mass vaccination resumed in July 2021 and the vaccination is catching up with regional peers (Figure 2). The authorities have started providing booster doses to the most vulnerable groups.

5. Bangladesh Bank (BB) eased monetary policy and increased liquidity in the banking system.^³ BB decreased the cash reserve ratio for domestic banks by 150 bps, the bank rate by 100 bps, the repo rate by 125 bps, and reverse repo by 75 bps. The advance to deposit ratio was increased by 2 percentage points and refinancing schemes worth Tk 5.5 billion were introduced. BB also increased liquidity, including through unsterilized foreign exchange (FX) interventions, leading to historically low interest rates on government securities.

6. The banking sector played a crucial role in channeling the stimulus packages. The bulk of COVID-19 stimulus support was designed in the form of an interest subsidy for working capital loans and loans to Cottage, Micro, Small and Medium Enterprises (CMSMEs) at subsidized interest rates. Several forbearance measures were introduced including a loan moratorium, reclassification freeze, and a relaxation of repayment terms (Annex VII). BB also introduced revolving refinancing facilities. Given the importance of CMSMEs, several specifically targeted initiatives were launched, including a guarantee scheme to encourage lending to the CMSME sector (Annex II).

7. Real GDP grew by 3.5 percent in FY20 and is estimated to have picked up to 5.0 percent in FY21.^⁴,^⁵ At the onset of the pandemic, exports, imports, and remittances contracted sharply, and the nation-wide lockdown led to a decline in domestic economic activity. Given the pandemic only affected the final quarter of FY20, unlike regional peers, growth in Bangladesh remained positive despite falling to a historically low level (lowest since 1991). In FY21, exports and imports rebounded strongly, reaching almost pre-pandemic levels, reflecting the fast recovery of external demand from main trading partners, high take-up of stimulus packages by the export sector, and exemption of the RMG sector from the second-round lockdowns. Remittances surpassed pre-crisis levels, supporting consumption and moderating the current account deficit to 1.3 percent of GDP in FY21 from 1.7 percent in FY20.^⁶ Private credit growth, however, remained subdued. The domestic recovery in FY21 was disrupted by the second and third waves. The nation-wide lockdown, coupled with the low vaccination rate, resulted in a modest recovery in FY21.

8. The pandemic has taken a toll on lives and livelihoods and has increased the urgency to implement longstanding structural reforms. Based on modeled ILO estimates, the unemployment rate in FY20 rose to 5.3 percent from 4.2 percent in FY19. The poverty rate (based on US$1.9 in 2011 PPP) rose from 11.9 percent in FY19 to 12.9 percent in FY20, adding 1.6 million new poor.^⁷ The most vulnerable groups, such as low-skilled and informal workers, youth and women were the hardest hit. Among adults in Dhaka and Chittagong who lost their jobs due to the pandemic and were still not working by February 2021, 2 out of 3 were women.^⁸ Structural reforms have become even more urgent to reverse these trends and to boost inclusive, resilient, green growth.

Outlook and Risks

9. Growth is projected to increase gradually as the impact of COVID-19 abates. Growth is expected to pick up to 6.6 percent in FY22, supported by a robust rebound in exports, continued implementation of the stimulus packages; and accommodative monetary and fiscal policies. However, the lockdown and restrictions, subdued private credit growth, and a low vaccination rate point to a modest recovery. As the external environment improves and the domestic vaccination program progresses, growth is expected to reach 7.1 percent in FY23. The pandemic’s impact is expected to spill over into the medium term leading to a loss in the output level compared to pre-pandemic projections.^⁹ Headline CPI inflation is projected to rise to 5.9 percent in FY22, slightly higher than BB’s yearly target of 5.3 percent. As the economy picks up, non-food inflation is projected to edge up to 6.4 percent, and food inflation is also expected to rise moderately due to higher international commodity prices.

10. The fiscal deficit is projected to peak at 6.1 percent of GDP in FY22 as pandemic-related spending increases. The FY22 budget and the medium-term framework have set ambitious revenue targets. Absent reforms, revenue is expected to remain almost flat (about 11 percent of GDP) over the medium term, 0.7 percent of GDP below the authorities’ targets. Nevertheless, the authorities have established a track record of remaining within their deficit target by reprioritizing spending. A timely and orderly exit from the stimulus, as well as the gradual rebound of the economy, are expected to bring the deficit back to the authorities’ medium-term target of 5 percent of GDP by FY25.

11. The current account (CA) deficit is projected to widen in FY22 and stabilize over the medium term. With the expected moderation in remittances and a pickup in imports, the CA deficit is projected to increase to 2.4 percent of GDP in FY22. In the medium term, the CA deficit-to-GDP ratio is expected to stabilize at around 2.5 percent of GDP with the share of exports to GDP expected to grow only modestly absent major reforms, and the increase in imports and remittances to moderate.

12. The external position is broadly in line with the level implied by fundamentals and desirable policies in FY21. (Annex III). With the one-time surge in remittances, reserve coverage peaked at 7.0 months of prospective imports at end FY21. Reserves are projected to decline over the medium term, staying around 5 months of prospective imports due to a higher CA deficit in a stabilized exchange rate regime, expected normalization in remittance inflows, and no substantial pick up in FDI.^¹⁰,^¹¹ To help mitigate this projected decline in reserve coverage, the authorities have appropriately used the recent SDR allocation of US$1.457 billion (0.4 percent of GDP) to bolster reserves. External public and publicly guaranteed debt is projected to remain sustainable around 14 percent of GDP over the medium term (DSA). Bangladesh remains at a low risk of external and overall risk of debt distress.

13. Uncertainty around the outlook remains exceptionally high and risks are tilted to the downside. A slower than expected recovery in trading partners, an increase in food and oil prices, and heightened risks from cyber-attacks are key external risks. Domestically, another surge of COVID-19 requiring strict containment measures, a lower-than-expected vaccination rate, and elevated non-performing loans (NPLs) could present a drag on growth prospects, while slow progress in resolving the Rohingya crisis could lead to donor fatigue. The risk of natural disasters continues to loom (Annex IV). On the upside, a stronger than expected global recovery and acceleration in Annual Development Plan (ADP) execution could spur a stronger recovery.

Authorities’ Views

14. The authorities view that the pick-up in economic activity will continue and inflation will remain contained. They are targeting FY22 growth rate to be 7.2 percent, supported by continued implementation of the stimulus packages, recovery in domestic demand, and strong pickup in exports. The authorities share staff’s concerns about inflationary pressures from rising international commodities prices, but expect the impact to be muted and temporary, abating in about nine months. On the external sector, the authorities noted that export growth has been robust —partly fueled by the diversion of orders from elsewhere in Asia, and import growth is expected to ease. The authorities acknowledge that remittances will normalize. The authorities have secured over 300 million vaccine doses and are confident of achieving their target of vaccinating 70 to 80 percent of the total population by early 2022. They broadly share staff’s assessment on risks. The authorities plan to gradually reduce the fiscal deficit to 5 percent of GDP over the medium term. On debt, authorities agreed that high interest costs are increasing the debt service and that the NSC reforms would help.

Policy Discussions

The near-term policy measures should aim to make room in the budget for health and social spending, while preserving reserve adequacy and enhancing fiscal transparency and governance. Once the pandemic is under control, policy priorities should shift back to creating greater fiscal space to expand developmental and social spending, reducing fiscal risks, preserving the stability of the financial system, and modernizing the monetary and financial system to support a solid recovery and to mitigate the medium-term economic impact of COVID-19. Such policies will also help prepare the ground to meet longer term development financing needs of the economy.

A. Creating Fiscal Space for Growth-Enhancing and Inclusive Spending

15. Near-term fiscal policy should continue to support the recovery by prioritizing expenditure and improving administrative efficiency. Staff views the authorities’ baseline fiscal path as appropriate in the near term. Bangladesh is assessed to retain some fiscal space owing to low public and external debt levels, though fiscal space is constrained by very low tax revenues. The authorities should stand ready to ramp up health and social spending, as risks are tilted to the downside. Emergency spending needs could be met through increasing revenues by rationalizing regressive tax expenditure, postponing low-priority capital spending, and saving on current spending. Reducing interest expenses from National Savings Certificates (NSCs) and improving administrative efficiency of the National Board of Revenue (NBR) and line ministries—including by leveraging on the authorities’ current digitalization efforts—will help increase fiscal space in the absence of significant tax policy reforms during the pandemic.

16. Higher revenues are necessary to achieve developmental and social targets in a fiscally sustainable way. Revenue as a share of GDP has remained persistently low and trailed behind peers, with the gap relative to the median of other countries in the region and emerging markets (EMs) increasing since 2013. Bangladesh needs to spend more on health, education, and social safety nets (Annex V) and boost investment in infrastructure. Although the risk of debt distress remains low, risks from a rising debt service-to-revenue ratio have increased, and developmental and priority spending—including to support the recovery—will continue to put pressure on public finances.

17. Raising tax productivity will help mobilize revenues. Bangladesh’s standard Value Added Tax (VAT) rate of 15 percent is in line with that of other countries, but VAT revenue productivity is low. Similarly, the corporate income tax (CIT) and personal income tax (PIT) productivities are lower than the median and closer to the bottom quartile of the measures of peer countries despite comparable tax rates. The difference in revenue performance points to a low tax base, resulting from tax exemptions and generous tax holidays as well as weak revenue administration and low compliance. The 2012 VAT and Supplementary Duty Act, implemented in 2019, has not yielded expected revenues due to multiple VAT rates that exacerbated revenue leakage and rendered tax collection more difficult. In the presence of a large informal sector, streamlined consumption and excise taxes provide an administratively feasible way of increasing revenues.

18. A multipronged revenue strategy is required to strengthen revenue in line with the authorities’ aspirations. The 8^th FYP has set the revenue target to reach 14 percent of GDP by FY25. While the recent efforts to promote electronic fiscal devices for VAT collection and to increase nontax revenue by collecting the surplus cash of the SOEs will help, mobilizing revenue to meet the aspirational targets would require both tax policy and revenue administration reforms. Expansion of well-targeted social spending will help protect the poor as well as build broader consensus for tax reforms.

Tax Policy Reforms:

Amend the tax and customs codes to rationalize tax expenditures.
Develop and adopt a medium-term revenue strategy.
Review and simplify the VAT structure to improve compliance and enhance the ability of the NBR to efficiently administer it.
Refrain from tax amnesty initiatives to prevent lower compliance in the future.

Revenue Administration Reforms:

Modernize the organizational structure of the NBR and develop the NBR’s performance management framework.
Modernize revenue administration, including via digitalization, to increase tax collections.

19. Additional spending measures would also make fiscal policy more growth friendly and inclusive in the medium term. Reducing the interest burden by limiting the use of NSCs as a financing vehicle and adopting a fuel pricing mechanism will help to accommodate additional spending and to strengthen the social protection system on a permanent basis. Modernizing and digitalizing core government functions can improve the efficiency of public service delivery and improve the transparency of public spending.^¹²

20. Fiscal policy framework reforms are needed to scale up productivity-enhancing investments and safeguard fiscal sustainability. With low levels of overall government spending, achieving high levels of efficiency is important to achieve development goals. The stock of public capital remains low, and the perceived quality of infrastructure is closer to other low-income countries and markedly lower than emerging economies. Further efficiency gains can be realized by conducting a spending review. Steps in improving public investment and fiscal risks management include (Annex VI):

Integrating the medium-term budget and the ADP processes to produce a consolidated medium-term budgetary framework (MTBF).
Developing and publishing an annual fiscal risk statement
Streamlining investment management and increasing the economic and spending efficiency of public-private partnerships (PPP) projects.
Improving the effectiveness of the budget execution system and timeliness of fiscal reporting.
Updating the 2014 medium-term debt strategy (MTDS).

Text Table. Bangladesh: Other Fiscal Policy Recommendations

Authorities’ Views

21. The authorities reconfirmed their commitment to expand social and developmental expenditure while safeguarding fiscal sustainability. The authorities concur with staff’s assessment that strengthening fiscal revenue will sustainably finance higher spending. They maintained that adoption of digitalization solutions and automation would increase revenue collection. They plan to assess tax expenditure to rationalize tax incentives. They pointed out that since many tax filers voluntarily opt for the standard VAT rate to avail input tax credit, there is no need to further streamline the multiple VAT rates. The authorities are actively monitoring energy prices and noted that the November 2021 price increase will help contain fuel subsidies. Closing down loss-making SOEs and creating a database to monitor the financial performance of SOEs will reduce fiscal risks. The authorities plan to publish the updated MTDS within the third quarter of FY22. To improve public expenditure efficiency and cash management, the authorities are implementing the Public Financial Management Action Plan (2018–23) that envisages integrating IBAS++ with other PFM systems to facilitate overall financial operations and improve accountability.

B. Monetary and Exchange Rate Policy to Foster Macroeconomic Stability

22. With the economy rebounding, BB should closely monitor inflation pressures and stand ready to normalize, including to ensure that inflation expectations remain anchored. Lower demand from the COVID-19 shock kept inflation (at 5.6 percent) close to the authorities’ yearly target of 5.4 percent in FY21 despite monetary easing. Supply-side pressures, including floods, kept food inflation elevated in early parts of FY21. Reflecting higher energy prices, administered prices for kerosine and diesel were increased by 23 percent in November 2021. Nonfood inflation has been creeping up in recent months and the authorities should continue to assess the potential for second-round effects on inflation from a spike in global commodity prices.

Text Table. Bangladesh: Bank Monetary Program and Outturns

Source: Bangladesh Bank

Text Table. Bangladesh: Bank Monetary Program and Outturns

			June, 2021		June, 2022
(y/y percent change)			Program	Actual	Program
Reserve Money			13.5	22.4	10.0
Broad Money			15.0	13.6	15.0
Net Foreign Assets			20.1	27.1	10.4
Net Domestic Assets			13.6	9.8	16.5
	Domestic Credit		17.4	10.3	17.8
		Credit to the Public Sector	31.7	21.2	32.6
		Credit to the Private Sector	14.8	8.4	14.8

Source: Bangladesh Bank

Text Table. Bangladesh: Bank Monetary Program and Outturns

			June, 2021		June, 2022
(y/y percent change)			Program	Actual	Program
Reserve Money			13.5	22.4	10.0
Broad Money			15.0	13.6	15.0
Net Foreign Assets			20.1	27.1	10.4
Net Domestic Assets			13.6	9.8	16.5
	Domestic Credit		17.4	10.3	17.8
		Credit to the Public Sector	31.7	21.2	32.6
		Credit to the Private Sector	14.8	8.4	14.8

Source: Bangladesh Bank

23. The monetary stance should also strike a balance between supporting the recovery and maintaining financial stability. Unsterilized FX interventions during part of the remittance surge period and low credit to both the public and private sectors led to increased liquidity. Credit to the private sector was tepid reflecting disruptions related to COVID-19. In FY21, net issuance of NSC instruments nearly doubled, decreasing government reliance on bank borrowing. Excess liquidity has translated to historically low interest rates on T-bills and T-bonds, which in turn has led to historically low lending rates, making the cap on lending rates not binding for some borrowers.^¹³ From May 2021, the authorities began mopping up liquidity, including in recent months through the sale of FX. The cap on lending rates constrains banks’ willingness to extend credit; nevertheless, the authorities should be prepared to speed up the withdrawal of excess liquidity if needed.

24. Distortions in the lending and borrowing rates limit BB’s policy space. The lending rate cap and the floor on the deposit rates should be phased out to strengthen market-based pricing, credit allocation, and monetary transmission. The lending rate cap forced banks to lower deposit rates, often below the inflation rate. Despite this, deposit growth recorded 14 percent y/y growth in FY21, driven by remittance inflows, agent banking, and the stimulus package. Because of the negative real return on deposits, BB instructed banks to set a floor on deposit rates for individual term deposits and pension related funds at the rate of inflation, as calculated from the average of the last three months. A floor on deposit rates will put additional pressure on bank profits that could lead to less credit to the private sector and hurt growth. It will also limit BB’s ability to provide additional monetary stimulus, if needed. Instead of imposing caps to lower the lending rates, BB should address structural issues impacting the interest rate structure, such as improving the efficiency of the banking system and developing financial markets (Section D).

25. Continued progress towards modernizing the monetary policy framework and developing capital markets is vital. As the economy diversifies and further integrates into the global economy, financial markets will deepen and become more complex. A forward-looking strategy and an interest-rate based monetary policy framework will contribute to macroeconomic stability, promote financial development, and enhance the transmission of monetary policy to the broader economy. Strengthening BB’s independence will be important for improving monetary policy transmission. With Fund technical assistance (TA), the authorities plan to move from targeting monetary aggregates to interest rate targeting (Annex VI).^¹⁴

26. Greater exchange rate flexibility would help buffer external shocks and manage domestic liquidity conditions. BB generally intervenes in FX markets to contain excess volatility. Appreciation pressures in FY21 were fully countered by BB’s purchase of US$ in FX markets and the Tk/US$ exchange rate remained relatively flat. Greater flexibility will also strengthen monetary transmission and help BB adopt an interest rate based monetary system.

27. Safeguarding FX reserve buffers remains crucial. The use of FX reserves to finance crucial infrastructure projects through the newly created Bangladesh Infrastructure Development Fund (BIDF) raises governance and external sustainability concerns. The BB has committed to finance the BIDF using FX reserves for up to US$ 2 billion, on the condition that (i) reserves are above 6 months of imports, (ii) project earnings are in FX, and (iii) a sovereign guarantee is provided. Other quasi fiscal operations pose similar risks. Given that risks are tilted to the downside, it would be prudent for Bangladesh to safeguard FX reserves as a buffer against shocks. Ad-hoc use of FX reserves could undermine fiscal discipline and expose the public sector to large contingent liabilities.

Authorities’ Views

28. The authorities agree that inflation in FY22 will likely be above their target of 5.3 percent given imported inflation driven by higher food and commodity prices. Inflation in FY22 is projected to be above 6 percent, and the authorities are closely monitoring second-round effects. They noted that recent FX sales have reduced excess liquidity and there are no financial stability risks from excess liquidity. The authorities pointed out that the interest rate cap has lowered the cost of credit and helped growth. They plan to continue the work on modernizing the monetary policy framework, including through IMF TA. To meet rising import needs, the authorities will continue to provide FX and allow the Taka to depreciate gradually against US dollar. They expect this to be a short-run phenomenon and for the exchange rate to stabilize with the repatriation of export proceeds and a pickup in remittances. The authorities emphasized that the lending from the BIDF was only to finance hard-to-finance part of the Payera Port project, and at no point total lending from the BIDF will exceed US$ 2 billion. They reiterated their resolve to maintain adequate reserve coverage and follow necessary safeguards.

C. Addressing Financial Sector Vulnerabilities to Mobilize Productive Investment

29. The banking sector in Bangladesh was weak before the COVID-19 shock, and the crisis has increased existing vulnerabilities. Between FY10 and FY19 the NPL ratio increased steadily, despite high GDP growth, due to structural weaknesses including in governance and legal infrastructure, compounded by lenient regulation, weak supervision and weak credit culture among some large influential debtors. As of September 2021, the overall NPL ratio for the banking sector stood at 8.1 percent of outstanding assets— reaching 20.1 percent for state-owned commercial banks (SOCBs). Reported NPLs do not fully reflect the extent of problem assets. Stressed advances, which encompass NPLs, restructured, and rescheduled loans, stood at 20.5 percent of outstanding loans at end-December 2018, about double the NPL ratio at that time.^¹⁵ ^¹⁶ Also, the current NPL data do not capture the impact of policy relaxations introduced to counter the COVID-19 shock (Annex VII).^¹⁷ Though capital in the overall banking sector is above the regulatory requirement (10 percent of risk weighted assets), capital in SOCBs (6.3 percent in end September) is below the regulatory minimum, and their profitability is lower than private banks. Ensuring adequate capital buffers is especially important given uncertainty about the quality of assets in the banking system.

30. COVID-19 policies have helped in the near term, but an orderly exit is needed to reduce the buildup of financial sector vulnerabilities. Any further support should be targeted, accompanied by monitoring and reporting for a timely identification of problem loans, with explicit sunset clauses.

Monitoring closely the asset quality of banks. In addition to collecting information about borrowers, sectors, and types of loans, implementing enhanced monitoring remains important. Identifying early signs of distress would help avoid large increases in NPLs after forbearance measures end.
Normalizing loan classification and provisioning rules. It is important to recognize problem loans as soon as possible and provision for them accordingly.
Enhancing the capitalization of banks. Undercapitalized banks should submit a feasible medium-term capital restoration plan• The authorities should limit dividend payouts until banks reach the regulatory minimum.

31. With increased vulnerabilities, financial sector risks pose a drag on medium-term growth prospects. Slow credit growth is symptomatic of high NPLs, low profitability, and distortions created by caps on the lending and borrowing rates. The urgency of implementing other existing policy recommendations has increased; these include:

Governance reforms: Strengthening the corporate governance of banks, including by strengthening the role of independent directors.
Regulatory reforms: Classification and provisioning requirements should be in line with Basel standards, including the treatment of rescheduled and non-performing loans.
Supervisory reforms: BB should strictly enforce the current prudential framework. To this end, strengthening BB independence and autonomy is key. The provision of waivers and phase-in periods for required provisions should be halted. BB is working toward risk-based supervision and is being supported by IMF TA (Annex VI).
Legal reforms: Legal features that allow delayed loan repayment should be addressed, and legal measures should be instituted to support stronger enforcement of creditor rights and debtor incentives to repay.

32. Improving the ability of banks to deal with NPLs, especially SOCBs where NPLs are most concentrated, remains a major policy challenge. Implementing reforms to stem the flow of NPLs is critical for the resolution of the stock of NPLs. These reforms are crucial to safeguard medium-term growth prospects. Conducting an asset quality review (AQR) of SOCBs, using definitions and provisioning in line with Basel standards, is an important first step to understand the extent of NPLs. Greater supervisory oversight, including developing internal NPL management skills and setting operational targets to reduce NPLs, can help initiate active NPL resolution in banks. Absent reforms to stem the flow of NPLs, establishing a public asset management corporation (AMC) poses significant fiscal risks. Moreover, it is not obvious that the AMC would have more expertise in resolution than the banks housing the NPLs. International experience suggests that the success of an AMC depends on good governance and sound design. The proposed Bangladesh Asset Management Corporation (BAMCO) draft law should address issues related to its mandate (no sunset clause, lack of details on how and when assets will be transferred, valuation of assets etc.), governance (potential for conflict of interest, expertise of the management), operational arrangements (lack of details on third party management), and transparency and accountability (no requirement for the regular publication of performance against targets).

33. The authorities have made amendments to several laws and acts to strengthen the banking sector and should continue to align them with best international practices. Acts include the Bank Company Act (BCA) 2021 (amendment), Financial Institutions Act 1993 (now the Finance Company Act (FCA) 2021), Money Loan Court Act 2020 (amendment), Negotiable Instrument Act 2020, and the Bankruptcy Act 2020 (amendment). The broad objectives of the amendments are to define willful defaulters, make mergers between banks easier, improve the legal process to expedite loan recovery, improve the autonomy of BB, and put in place an orderly bank resolution system. While the amendments take steps to move toward best practices, further improvements are needed including strengthening the power of BB as the supervisor of SOCBs. The BCA and FCA were approved by the cabinet in May 2021.

Authorities’ Views

34. The authorities emphasized the important role SOCBs play, which was especially highlighted during the COVID-19 shock. The authorities underscored that if the COVID-19 situation remains “as is”, no further forbearance measures will be introduced. They reiterated that steps are being taken to reduce financial sector vulnerabilities post pandemic. Banks were required to maintain 1 percent extra provisions for loans that benefitted from the loan moratorium in 2020, extended until end-2021, and an extra 2 percent general provision for loans that benefitted from the ease of repayment measures in 2021. BB has instructed banks to collect data on loans benefitting from the moratorium, which they will examine, and they will also conduct on-site inspections. BB pointed out that of the loans that benefitted from the moratorium, 14 percent of what was due was repaid. To improve the performance of SOCBs, BB has signed MoUs with five of the six SOCBs. Like previous years, the authorities don’t plan to recapitalize the SOCBs. They noted that newly introduced online services and automation are likely to enhance profitability of banks. They emphasized that the amendments to the various Acts under consideration will effectively address any weaknesses in governance, supervision, and regulation.

D. Developing Capital Markets to Support Higher Investment and Growth

35. To develop capital markets, which can provide long-term finance, efforts to reform the NSC system should continue. On tap sale of NSCs, offering risk-free fixed interest rates above market rates, has hampered the development of local capital markets and prevented the implementation of a debt management strategy. Reforms in FY20 to enforce the cap on NSC issuance and increase the tax on interest income led to a decline in issuance by around 70 percent y/y. However, issuance in FY21 rebounded driven by the exceptional remittance inflows and the increase in the spread between the deposit rate and the NSC rate. Changes in the tiered interest rates on NSCs, introduced in September 2021, are a welcome move. However, the authorities should reform the mechanism of determining the interest rate to ensure better alignment with market-determined interest rates.

Text Table. Bangladesh: NSC Interest Rates

Source: Ministry of Finance

Text Table. Bangladesh: NSC Interest Rates

(in percent)	5 – year	3- month	Family	Pensioners’
Old Rate	11.28	11.04	11.52	11.76
Less than or equal to Tk 1.5 million	11.28	11.04	11.52	11.76
More than Tk 1.5 and up to or equal Tk 3 million	10.30	10.00	10.50	10.75
More than Tk 3 million	9.30	9.00	9.50	9.75

Source: Ministry of Finance

Text Table. Bangladesh: NSC Interest Rates

(in percent)	5 – year	3- month	Family	Pensioners’
Old Rate	11.28	11.04	11.52	11.76
Less than or equal to Tk 1.5 million	11.28	11.04	11.52	11.76
More than Tk 1.5 and up to or equal Tk 3 million	10.30	10.00	10.50	10.75
More than Tk 3 million	9.30	9.00	9.50	9.75

Source: Ministry of Finance

36. The Dhaka Stock Exchange reached a historic high in 2021. Total market capitalization is still relatively low at Tk 5.5 trillion or 18 percent of FY21 GDP. Turnover has been volatile but generally increasing since May 2020. In October 2021, the Dhaka Stock Exchange supported the trade of government bonds on the secondary market, allowing retail investors to purchase the assets. This development will contribute to the development of the government security market and other asset classes. Continued progress on implementing regulatory reforms to minimize risks, enhancing the transparency of stock market trading and information, and improving the capacity of the Bangladesh Securities and Exchange Commission (BSEC) remain important for capital market development.

Authorities’ Views

37. The authorities are working on developing capital markets. The authorities noted that tiered NSC rate cuts and continued automation of the NSC management system will reduce NSC issuances. The staffing of BSEC has been increased to enforce the implementation of governance guidelines. BSEC noted that the availability of an online account will broaden access to investing in the stock market. Trading in the government securities market is being automated to increase the number of securities available for secondary trading. They also shared that they were exploring the development of markets for municipal bonds and Environmental, Social, and Governance (ESG) financial instruments. More recently, a green sukuk bond was floated which was oversubscribed indicating a strong demand for investment opportunities. TA by donors is ongoing to enhance the regulatory environment.

Macro-Structural

Structural policies should focus on finding new drivers of growth, attracting private investment, and enhancing productivity to lift growth potential. Building climate resilience remains critical for the sustainability of growth. This will require improving the investment climate and investing in skill building. These reforms are necessary to prepare for LDC graduation and support the authorities’ goals to achieve middle-income status.

A. Strengthening Governance to Boost Investment

38. Bangladesh stands to gain from strengthening economic governance and improving frameworks to limit vulnerability to corruption. While close to the average for LIDCs on control of corruption indicators, Bangladesh trails South Asian peers and emerging market peers (Figure 7). Enhancing fiscal governance (¶20) and improving the efficiency of the financial sector (¶31) remain crucial for achieving medium-term goals. Further progress in digitalizing the public sector would help promote transparency and reduce corruption. Improving the skills and staffing of the Anti-Corruption Commission (ACC) to investigate cases will enhance governance and anti-corruption efforts. It is also important to strengthen the asset declaration process for public officials, including by publishing declarations for key officials, imposing sanctions for non-compliance, better verifying information, and using a standard method to utilize and update the declarations. Improved court capacity will be necessary to reduce case backlogs and long wait, including to make improvements in property rights and investor protection.

39. The authorities have made progress on commitments made in the Letter of Intent (LOI) of the RCF/RFI. The Office of the Comptroller and Auditor General (CAG) completed three audits related to COVID-19 spending, including auditing accounts related to emergency response and pandemic preparedness, and spending related to doctors and healthcare workers treating COVID-19. These audit reports will be published online once they have been submitted to and accepted by Parliament. Procurement contract information on the procuring entity, method of procurement, advertisement date, awarded entity, and contact value are documented and published on the Central Procurement Technical Unit website.^¹⁸ While information on beneficial ownership of awarded entities, has not been published online, given the current legal framework, this information has been made available to the audit agency, as committed in the LOI.

40. Implementing the recommendations of the 2022 safeguards assessment remains important. The governance and legal structure of BB needs to be updated to strengthen autonomy and thus better safeguard resources. Capacity constraints in the internal audit and accounting functions, identified in the 2011 assessment, remain unresolved. Continued capacity challenges are adversely impacting internal control, including risk management, internal audit, and the quality of financial reporting. It is important to improve the quality of financial statements and external audits. The time-bound exit strategy from non-core central bank activities (quasi-fiscal operations), including financing infrastructure development projects, exporters and other priority sector companies by extending foreign currency lending to and placing foreign currency deposits with local banks is critical to safeguard foreign reserves and reduce BB’s credit and reputational risks.

41. Progress has been made in strengthening the AML/CFT framework, but overall effectiveness is still lacking. In November 2019 the authorities published the National Strategy for Preventing Money Laundering and Combating Financial Terrorism. In order to empower reporting agencies to collect information on beneficial ownership and impose sanctions for violations, amendments to the Company Act have been put forward. Considerable work has been done in the offsite supervision tool, and future IMF TA missions will focus on completing the tool and the onsite supervision manual (Annex VI).

Authorities’ Views

42. The authorities agreed that strengthening governance, as highlighted by staff, is vital. The authorities have begun the process to ensure that information compiled on foreign exchange reserves is in accordance with the BPM6 guidelines. They highlighted that some progress has been made in strengthening the AML/CFT framework. They do not have any non-compliance ratings under the FATF. Guidelines for risk-based supervision have been issued, and amendments to the Company Act have been put forward to empower agencies to collect information on beneficial ownership and impose sanctions when transgressions are found. The third National ML/TF Risk and Vulnerability Assessment is ongoing. Efforts to strengthen the ACC continues. Resource allocations have been increased to enable it to function at a level commensurate with its mandate. The ACC has also committed to improve transparency by disseminating information in the public domain. It is expected to be more accountable through public hearings by the parliamentary committee. Along with enacting the Whistle Blower Act, the authorities plan to establish anti-corruption cells in various departments.

B. Boosting Exports and Productivity to Generate Good-Paying Jobs

43. Diversifying exports and maintaining competitiveness in a post-pandemic world is important for growth acceleration. RMG-led export growth has been a key driver of growth and job creation in Bangladesh. However, trade openness is low, and Bangladesh remains one of the least diversified LICs, both in terms of products and destination. The 8th FYP aims to diversify the production and exports of the non-RMG sector. Reducing relatively high nontariff barriers (NTBs) and domestic protection, improving trade-related infrastructure— especially energy and transportation, addressing regulatory barriers, and ensuring financing will be necessary to increase export competitiveness and expand trade.

44. Attracting FDI is critical to meeting the authorities’ aspirations. FDI inflows, averaging less than 1 percent of GDP over the past two decades, remains low compared to other LICs. Increasing FDI inflows is crucial to take advantage of GVCs, raising productivity, acquiring new knowledge and technology, and meeting large infrastructure needs in a constrained financing environment with underdeveloped capital markets. To facilitate FDI, the government is accelerating the setting up of Special Economic Zones (SEZs) and has started the One Stop Service virtual platform. However, attaining the ambitious target set in the 8^th FYP will require improving the investment climate, including continued liberalization of FX regulations as conditions allow, a review of the regulatory framework to be more supportive of trade and outward FDI, and further legal reforms, such as land registration and contract enforcement.

45. Reducing labor skill-mismatches, increasing human capital, and access to technology would boost labor productivity and total factor productivity (TFP). Labor productivity is relatively low in Bangladesh. A sizable fraction of Bangladesh’s labor force is low skilled, and skill mismatch is a big hurdle for transiting to the formal sector. According to the ILO, in 2018, 26 percent of youth were not employed, being educated, or being trained. This is especially pronounced for females, 44 percent compared to 9 percent for males.^¹⁹ Improving human capital and technology is crucial to boost productivity. Bolstering spending on health and education; improving educational outcomes, with emphasis on learning and acquiring workplace-relevant skills; and addressing the gaps in educational and vocational training would help with skill building. Upskilling of female workers is vital to improve productivity as well as gender equity. Also, targeted skill building for economic diversification is needed to offset the negative impact of automation and digitalization.^²⁰ Technological progress through FDI, digitalization, and investment in climate resilience are all likely to boost TFP. Boosting productivity is key to increasing growth potential.

Authorities’ Views

46. The authorities are working on attracting FDI and boosting competitiveness. They noted that the one-stop service platform, investments in supporting infrastructure, and continued efforts to improve skills will create a conducive investment climate and boost competitiveness. The authorities are reaching out to investors to increase the awareness about the ongoing efforts to improve the business climate. 100 economic zones by 2030 have been planned. They are also stepping up investments in several megaprojects, high tech parks, and SEZs, as well as modernizing agriculture and encouraging agro-processing to diversify exports. To address the challenges of LDC graduation, high-powered committees to handle various aspects of graduation have been formed. In addition, the authorities are considering Bilateral Free Trade and Preferential Trade Agreements and are taking measures to reduce tariff and non-tariff barriers.

C. Tackling Climate Challenge to Build Resilience and Competitiveness

47. Building resilience to climate change and natural disasters is a key priority for sustainable growth. Bangladesh, the 27th most vulnerable country and the 26th least ready country per the Notre Dame’s Global Adaptation Initiative Index, has growing needs to mobilize private finance to meet adaptation expenses. The authorities have started allocating budgetary support for adaptation and have updated the Nationally Determined Contributions (NDC). However, climate relevant budgetary allocation has been less than 1 percent of GDP (both for mitigation and adaption) per year, well below the needed 3–4 percent of GDP per year.^²¹ The authorities’ advocacy for adaptation and incentives for green financing has not yet been able to mobilize sufficient green financing.

48. A range of policy actions, as envisaged in the 8^th FYP, are needed to tackle climate change challenges and attract green financing. Reducing energy subsidies and increasing taxation of greenhouse gas emissions, as planned under the 8^th FYP, will help meet NDC targets. Early implementation of carbon taxation or a carbon charge slated for FY25 in the 8th FYP may leverage private finance by signaling environmental commitments laid out in the NDC. This together with broader tax reforms could be a strong commitment signal and help mobilize green finance, as well as preserve competitiveness when border adjustment taxes are imposed by the EU.^²² Financial sector reforms (¶31 and ¶32), capital market reforms (¶35), and governance reforms (¶38-¶40) will help catalyze private capital and FDI for climate action and for meeting broader SDG goals.

Authorities’ Views

49. The authorities highlighted their commitment to meeting the climate challenge. They underscored that Bangladesh has been on the forefront of climate action, including operationalizing the Climate Fiscal Framework and establishing the Climate Change Trust Fund. They highlighted their continued efforts, including via several central bank initiatives, to promote solar and other renewal energy sources to reduce emissions. BB also circulated the Sustainable Finance Policy for Banks and Financial Institutions in December 2020 and incorporated lists of 68 Green Products/Projects/Initiatives. They added that ten coal-fired power plants projects have been cancelled. The authorities emphasized that Bangladesh has largely been a recipient of climate change and concessional climate financing is needed to meet their mitigation and adaptation challenges. The authorities are also strengthening the regulations for tapping ESG finance, including BB’s issuance of Environmental and Social Risk Management Guidelines for mainstreaming ESG in overall credit rating methodology. While they broadly agree that a carbon charge could signal their commitment towards meeting their NDC targets, they reiterated that carbon pricing should be also adopted by other economies. They noted the political economy constraints linked to plausible increase in production costs and energy prices, and that implementing a progressive carbon charge was impeded by several factors, such as the lack of competent energy auditors.

Post Financing Assessment^²³

50. Bangladesh’s capacity to repay the Fund is sound. IMF credit outstanding was 83.4 percent of quota (0.4 percent of GDP) at end-FY21 and is projected to decline to 71.4 percent of quota at end-FY22 (0.3 percent of GDP). Bangladesh’s capacity to repay the IMF has slightly improved since the 2020 RCF/RFI disbursement, as the negative fallout of the pandemic on exports, remittance inflows, and ultimately GDP was less severe than anticipated at that time. These better-than-expected developments are also leading to a faster rebound of fiscal revenue, and the IMF debt service as a share to GDP, revenue, exports, and reserves is expected to be moderately lower over the medium term compared to the 2020 RCF/RFI disbursement projections. Overall, external and public debt are assessed at low risk of debt distress (DSA).

51. However, the repayment capacity is subject to downside risks (Annex VIII). The largest risk relates to a global resurgence of the COVID-19 pandemic lowering global growth, increasing commodity prices, and severely impacting Bangladesh’s exports, remittances inflows, and CA balances. The impact would be aggravated if local COVID-19 outbreaks require costly containment measures that severely disrupt domestic economic activity.

52. In the adverse scenario, Bangladesh’s capacity to repay the Fund would deteriorate mildly but would remain sound (Annex VIII). Containing the pandemic and reprioritizing spending would be crucial, should such downside risks materialize. Supporting the health system and re-enacting containment measures, while ensuring that export and import channels operate safely, as witnessed during the 2021 nation-wide lockdown, will be important. Managing these risks amid large uncertainty will require continued support for the economy, close monitoring of the financial sector, and gradually rebuilding buffers for policy maneuver as the recovery gets entrenched. Under such an adverse scenario, public finances would be impaired by lower revenue, higher health, social and energy subsidy spending, and contingent liabilities materializing from explicit and implicit state guarantees provided to SOEs.

Text Table. Bangladesh: Indicator: of Capacity to Repay the Fund, FY2021 -26

Outstanding obligations to the Fund	Scenario	FY21	FY22	FY23	FY24	FY25	FY26
In percent of GDP	2021 AIV	0.36	0.27	0.21	0.12	0.05	0.04
	2020 RCF/RFI	0.37	0.28	0.22	0.13	0.06	0.04
	Adverse	0.36	0.28	0.22	0.13	0.06	0.04
In percent of government revenue	2021 AIV	3.3	2.5	1.9	1.1	0.5	0.3
	2020 RCF/RFI	4.2	2.9	2.3	1.3	0.6	0.4
	Adverse	3.3	2.6	2.0	1.2	0.5	0.3
In percent of exports of goods and services	2021 AIV	2.5	2.1	1.7	1.1	0.5	0.3
	2020 RCF/RFI	3.2	2.3	1.9	1.1	0.5	0.3
	Adverse	2.9	2.2	1.3	1.1	0.5	0.3
In percent of gross international reserves	2021 AIV	2.7	2.2	2.0	1.4	0.7	0.5
	2020 RCF/RFI	4.7	3.9	3.4	2.1	1.0	0.7
	Adverse	2.7	2.4	2.5	1.6	0.8	0.6

Text Table. Bangladesh: Indicator: of Capacity to Repay the Fund, FY2021 -26

Outstanding obligations to the Fund	Scenario	FY21	FY22	FY23	FY24	FY25	FY26
In percent of GDP	2021 AIV	0.36	0.27	0.21	0.12	0.05	0.04
	2020 RCF/RFI	0.37	0.28	0.22	0.13	0.06	0.04
	Adverse	0.36	0.28	0.22	0.13	0.06	0.04
In percent of government revenue	2021 AIV	3.3	2.5	1.9	1.1	0.5	0.3
	2020 RCF/RFI	4.2	2.9	2.3	1.3	0.6	0.4
	Adverse	3.3	2.6	2.0	1.2	0.5	0.3
In percent of exports of goods and services	2021 AIV	2.5	2.1	1.7	1.1	0.5	0.3
	2020 RCF/RFI	3.2	2.3	1.9	1.1	0.5	0.3
	Adverse	2.9	2.2	1.3	1.1	0.5	0.3
In percent of gross international reserves	2021 AIV	2.7	2.2	2.0	1.4	0.7	0.5
	2020 RCF/RFI	4.7	3.9	3.4	2.1	1.0	0.7
	Adverse	2.7	2.4	2.5	1.6	0.8	0.6

Authorities’ Views

53. The authorities concur with staff’s assessment that the capacity to repay the Fund remains sound. Both fiscal and monetary authorities remain committed to jointly support the recovery and mitigate adverse shocks while safeguarding fiscal sustainability, should downside risks materialize.

Staff Appraisal

54. The authorities reacted swiftly and decisively to address the economic fallout of the pandemic. Various stimulus packages helped keep growth positive and aided a pickup thereafter. Entering the shock with macroeconomic stability was an important support to the authorities’ efforts.

55. Uncertainties remain high and risks are tilted to the downside. Key external risks include slower than expected recovery in trading partners, an increase in food and oil prices, and risks from cyber-attacks. Domestic risks include a COVID-19 surge, a lower-than-expected vaccination rate, and elevated NPLs. The authorities should stand ready to ramp up health and social spending if downside risks related to COVID-19 materialize.

56. Fiscal discipline has kept Bangladesh at a low risk of debt distress, but higher revenues are necessary to achieve developmental and social targets in a fiscally sustainable way. A multipronged revenue strategy to rationalize tax expenditure and modernize revenue administration, and fiscal policy framework reforms to strengthen investment management and fiscal risks assessment are needed to scale up social, developmental, and climate-related spending.

57. BB should monitor inflation developments closely and stand ready to normalize. Phasing out interest rate caps will strengthen market-based pricing, credit allocation, and monetary transmission. Efforts to modernize monetary policy should continue.

58. The external position is broadly in line with the level implied by fundamentals and desirable policies in FY21. Greater exchange rate flexibility, together with safeguarding FX reserves, will help buffer external shocks. Developing a well-defined public investment plan and financing strategy would help avoid the ad-hoc use of foreign exchange reserves, which raises governance and sustainability concerns.

59. The COVID-19 shock increased vulnerabilities in the already weak banking sector. A healthy banking sector will be critical to ensuring sustainable and high growth over the medium term. Priorities include an orderly exit from COVID-19 policies and strengthening corporate governance in banks, improving regulation and supervision, and legal reforms to enforce creditor rights.

60. Developing a well-functioning capital market can provide long-term financing and reduce dependence on bank financing. Reforms to the NSC system are welcome and should be continued to ensure prices are better aligned with market-determined interest rates. Progress on regulatory reforms and improving the capacity of BSEC remain important.

61. Strengthening governance and improving frameworks to limit vulnerability to corruption will help attract investment. Efforts to digitize the public sector will help promote transparency and reduce corruption. Improving court capacity to reduce case backlogs would also improve property rights and investor protection.

62. Attracting FDI, diversifying exports, and maintaining competitiveness are important for boosting growth potential. Improving the investment climate, reducing tariff and non-tariff barriers, improving trade-related infrastructure, and building industry-relevant skills would help in this regard.

63. Building resilience to climate change and natural disasters and attracting green financing remain important. The budget allocation to support adaptation to meet SDG goals can be bolstered. Additionally, reducing energy subsidies, and introducing greenhouse gas or carbon charge incrementally, can help meet the recently submitted updated NDC targets.

64. Bangladesh’s capacity to repay the Fund is sound. Bangladesh’s capacity to repay the Fund would remain sound both in the baseline and under an adverse scenario.

65. Staff recommends that the next Article IV consultation be held on the standard 12-month cycle.

^{Table 1.}

Bangladesh: Selected Economic Indicators, FY2018–23 ^1/

Sources; Bangladesh authorities; World Bank, World Development Indicators; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1.

^{^2/}Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by BB to domestic banks.

^{Table 1.}

Bangladesh: Selected Economic Indicators, FY2018–23 ^1/

I. Social and Demographic Indicators
Population (2020. millions: estimate)	165	Infant mortality (2016, per thousand live births)	26.0
GDP per capita (2020, U.S. dollars)	1962	Life expectancy at birth (2016, years)	71.6
Labor force participation rate (2017, percent; national measure)	58.4	Adult literacy (2016, percent of people)	73.D
Poverty headcount ratio (2019, national measure, percent)	20.5	Population dependency ratio (2017, percent)	50.0
Gini index (2016,World Bank estimate)	32.1	Population growth (FY20, y/y, percent; estimate)	1,0

II. Macroeconomic Indicators
				FY18	FY19	FY20	FY21	FY22	FY23
							Est.	Est.	Proj.
National income and prices (annual percent change)
Real GDP				7.9	8.2	3.5	5.0	6.6	7.1
	GDP deflator			5.6	4.5	4.1	5.3	5.6	5.8
	CPI inflation (annual average)			5.8	5.5	5.6	5.6	5.9	5.8
	CPI inflation (end of period)			5.5	5.5	6.0	5.6	5.9	5.7
	Nonfood CPI inflation (end of period)			4.9	5.7	5.2	5.9	6.4	5.9
Central government operations (percent of GDP)
	Total revenue and grants			10.4	9.5	9.8	10.9	10.6	10.9
		Total revenue		10.3	9.4	9.7	10.9	10.8	10.9
			Tax	9.3	8.7	6.1	6.9	6.9	9.0
			Nontax	1.0	0.7	1.6	1.9	1.6	1.6
		Grants		0.1	0.1	0.1	0.1	0.0	0.0
	Total expenditure			15.2	15.7	15.4	15.1	16.9	16.5
		Current expenditure		8.2	8.7	6.6	8.7	9.9	9.3
		Annual Development Program (ADP)		5.9	5.9	5.7	5.3	5.5	5.9
		Other expenditures		1.1	1.1	1.1	1.1	1.5	1.3
	Overall balance (including grants)			-4.6	-6.3	-5.6	-4.2	-6.1	-5.7
		(Excluding grants)		-4.6	-6.3	-5.7	-4.3	-6.1	-5.7
	Primary balance (excluding grants)			-3.0	-4.4	-3.6	-1.9	-3.7	-3.0
Total central government debt (percent of GDP)				34.6	36.1	39.5	41.4	42.5	42.7
Money and credit (end of fiscal year; percent change)
	Credit to private sector by the banking system			17.0	11.3	6.6	6.3	11.6	11.5
	Reserve money			4.0	5.3	15.5	22.3	10.0	13.7
	Broad money (M2)			9.2	9.9	12.7	13.6	15.0	13.7
Balance of payments (billions of U.S. dollars)
	Exports, f.o.b.			36.3	39.6	32.1	36.9	43.2	44.6
		(Annual percent change)		6.7	9.1	-18.9	14.9	17.0	3.3
	Imports, f.o.b.			-54.5	-55.4	-50.7	-60.7	-67.8	-71.0
		(Annual percent change)		25.2	1.8	-8.6	19.7	11.7	4.7
	Current account balance			-9.6	-4.5	-5.4	-4.6	-9.4	-11.3
		(Percent of GDP)		-3.5	-1.5	-1.7	-1.3	-2.4	-2.6
	Capital and financial account balance			9.5	6.1	9.5	13.3	9.5	9.3
		Of which: Foreign direct investment		1.9	2.6	1.3	1.4	1.6	1.6
	Overall balance			-0.7	1.0	3.6	9.3	0.1	-2.1
Gross official reserves (billions of U.S. dollars) ^2/				32.3	32.7	36.0	46.4	47.7	45.5
	In months of prospective imports of goods and services			6.0	6.5	6.1	7.0	6.9	6.4
Exchange rate (taka per U.S. dollar; period average)				82.1	64.0	64.8	64.8	…	…
Exchange rate (taka per U.S, dollar; end-period)				83.7	84.5	64.9	64.8	…	…
Nominal effective rate (2010=100; period average)				95.1	97.6	99.1	95.6	…	…
Real effective rate (2010=100; period average)				132.3	139.9	146.9	147.0	…	…
Memorandum item:
	Nominal GDP (billions of taka)			22,505	25,425	27,393	30,284	34,086	38,610

Sources; Bangladesh authorities; World Bank, World Development Indicators; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1.

^{^2/}Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by BB to domestic banks.

^{Table 1.}

Bangladesh: Selected Economic Indicators, FY2018–23 ^1/

I. Social and Demographic Indicators
Population (2020. millions: estimate)	165	Infant mortality (2016, per thousand live births)	26.0
GDP per capita (2020, U.S. dollars)	1962	Life expectancy at birth (2016, years)	71.6
Labor force participation rate (2017, percent; national measure)	58.4	Adult literacy (2016, percent of people)	73.D
Poverty headcount ratio (2019, national measure, percent)	20.5	Population dependency ratio (2017, percent)	50.0
Gini index (2016,World Bank estimate)	32.1	Population growth (FY20, y/y, percent; estimate)	1,0

II. Macroeconomic Indicators
				FY18	FY19	FY20	FY21	FY22	FY23
							Est.	Est.	Proj.
National income and prices (annual percent change)
Real GDP				7.9	8.2	3.5	5.0	6.6	7.1
	GDP deflator			5.6	4.5	4.1	5.3	5.6	5.8
	CPI inflation (annual average)			5.8	5.5	5.6	5.6	5.9	5.8
	CPI inflation (end of period)			5.5	5.5	6.0	5.6	5.9	5.7
	Nonfood CPI inflation (end of period)			4.9	5.7	5.2	5.9	6.4	5.9
Central government operations (percent of GDP)
	Total revenue and grants			10.4	9.5	9.8	10.9	10.6	10.9
		Total revenue		10.3	9.4	9.7	10.9	10.8	10.9
			Tax	9.3	8.7	6.1	6.9	6.9	9.0
			Nontax	1.0	0.7	1.6	1.9	1.6	1.6
		Grants		0.1	0.1	0.1	0.1	0.0	0.0
	Total expenditure			15.2	15.7	15.4	15.1	16.9	16.5
		Current expenditure		8.2	8.7	6.6	8.7	9.9	9.3
		Annual Development Program (ADP)		5.9	5.9	5.7	5.3	5.5	5.9
		Other expenditures		1.1	1.1	1.1	1.1	1.5	1.3
	Overall balance (including grants)			-4.6	-6.3	-5.6	-4.2	-6.1	-5.7
		(Excluding grants)		-4.6	-6.3	-5.7	-4.3	-6.1	-5.7
	Primary balance (excluding grants)			-3.0	-4.4	-3.6	-1.9	-3.7	-3.0
Total central government debt (percent of GDP)				34.6	36.1	39.5	41.4	42.5	42.7
Money and credit (end of fiscal year; percent change)
	Credit to private sector by the banking system			17.0	11.3	6.6	6.3	11.6	11.5
	Reserve money			4.0	5.3	15.5	22.3	10.0	13.7
	Broad money (M2)			9.2	9.9	12.7	13.6	15.0	13.7
Balance of payments (billions of U.S. dollars)
	Exports, f.o.b.			36.3	39.6	32.1	36.9	43.2	44.6
		(Annual percent change)		6.7	9.1	-18.9	14.9	17.0	3.3
	Imports, f.o.b.			-54.5	-55.4	-50.7	-60.7	-67.8	-71.0
		(Annual percent change)		25.2	1.8	-8.6	19.7	11.7	4.7
	Current account balance			-9.6	-4.5	-5.4	-4.6	-9.4	-11.3
		(Percent of GDP)		-3.5	-1.5	-1.7	-1.3	-2.4	-2.6
	Capital and financial account balance			9.5	6.1	9.5	13.3	9.5	9.3
		Of which: Foreign direct investment		1.9	2.6	1.3	1.4	1.6	1.6
	Overall balance			-0.7	1.0	3.6	9.3	0.1	-2.1
Gross official reserves (billions of U.S. dollars) ^2/				32.3	32.7	36.0	46.4	47.7	45.5
	In months of prospective imports of goods and services			6.0	6.5	6.1	7.0	6.9	6.4
Exchange rate (taka per U.S. dollar; period average)				82.1	64.0	64.8	64.8	…	…
Exchange rate (taka per U.S, dollar; end-period)				83.7	84.5	64.9	64.8	…	…
Nominal effective rate (2010=100; period average)				95.1	97.6	99.1	95.6	…	…
Real effective rate (2010=100; period average)				132.3	139.9	146.9	147.0	…	…
Memorandum item:
	Nominal GDP (billions of taka)			22,505	25,425	27,393	30,284	34,086	38,610

Sources; Bangladesh authorities; World Bank, World Development Indicators; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1.

^{^2/}Excludes deposits held in offshore accounts of resident financial institutions, noninvestment grade sovereign bonds, and foreign exchange overdrafts provided by BB to domestic banks.

^{Table 2.}

Bangladesh: Medium-Term Indicators, FY2017–26 ^1/

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year begins July 1.

^{^2/}Includes central government’s gross debt, including debt owed to the IMF, plus domestic bank borrowing by nonfinancial public sector and public enterprises’ external borrowing supported by government guarantees, including short-term oil-related suppliers’ credits.

^{Table 2.}

Bangladesh: Medium-Term Indicators, FY2017–26 ^1/

			FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26
						Est.	Est.	Proj.
			(Annual percent change)
Kea GDP			7.3	7.9	8.2	3.5	5.0	6.6	7.1	7.2	7.2	7.1
GDP deflator			6.3	5.6	4.5	4.1	5.3	5.6	5.8	5.6	5.5	5.5
CPI inflation (annual average)			5 4	5.8	5.5	5.5	5.5	5.9	5.8	5.6	5.5	5.5
CPI inflation (end of period)			5.9	5.5	5.5	6.0	5.6	5.9	5.7	5.5	5.5	5.5
Credit to private sector (end of period)			15.7	17.0	11.3	8.6	8.3	11.6	11.5	11.5	11.5	11.3
			(In percent of GDP)
Gross national savings			29.6	27.4	29.5	28.7	29.8	29.5	30.2	30.3	30.4	30.6
	Public national savings		0.9	2.2	0.7	1.2	2.2	0.8	1.5	1.3	1.3	1.2
	Private national savings		28.8	25.2	28.8	27.5	27.5	28.6	28.7	29.0	29.1	29.3
Gross investment			30.5	31.2	31.6	30.5	31.1	31.8	32.8	32.8	32.9	33.1
	Public investment		7.4	8.0	8.0	8.4	7.8	8.4	8.8	8.2	7.7	7.7
	Private investment		23.1	23.3	23.5	22.1	23.2	23.4	24.0	24.6	25.2	25.4
Net exports of goods and services			-5.2	-8.6	-5.1	-6.5	-7.5	-6.8	-6.6	-6.2	-5.5	-5.6
	Exports of goods and services		15.0	14.8	15.3	12.0	12.4	13.1	12.2	11.5	11.2	11.0
	Imports of goods and services		20.3	23.4	21.4	13.5	19.9	19.9	15.5	17.6	17.1	16.6
Current account balance			-0.5	-3.5	-1.5	-1.7	-1.3	-2.4	-2.6	-2.5	-2.5	-2.5
Central government operations
	Total revenue and grants		9.5	10.4	9.5	9.8	10.9	10.8	10.9	10.5	10.5	10.8
		Of which : Tax revenue	8.2	9.3	8.7	8.1	8.9	8.9	9.0	9.0	9.0	9.0
	Total expenditure		14.4	15.2	15.7	15.4	15.1	16.9	16.5	16.2	15.9	15.9
		Of which : Annual Development Program (ADP)	4.9	5.9	5.9	5.7	5.3	5.5	5.9	5.4	5.0	5.0
	Overall balance (including grants)		4.9	4.8	-5.3	-5.6	-4.2	-6.1	-5.7	-5.4	-5.0	-5.0
		(excluding grants)	-5.0	-4.5	-6.3	-5.7	-4.3	-6.1	-5.7	-5.4	-5.1	-5.0
	Primary balance (excluding grants)		-3.2	-3.0	-4.4	-3.6	-1.9	-3.7	-3.0	-2.7	-2.3	-2.2
Public sector total debt ^2/			33.4	34.6	36.1	39.5	41.4	42.5	42.7	42.6	42.3	42.1
		Of which : External debt	13.7	14.9	15.1	16.5	17.5	15.7	15.5	15.2	14.7	14.2
Memorandum item:
	Nominal GDP (in billions of taka)		19,758	22,505	25,425	27,393	30,284	34,086	38.610	43,699	49,400	55,792

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year begins July 1.

^{Table 2.}

Bangladesh: Medium-Term Indicators, FY2017–26 ^1/

			FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26
						Est.	Est.	Proj.
			(Annual percent change)
Kea GDP			7.3	7.9	8.2	3.5	5.0	6.6	7.1	7.2	7.2	7.1
GDP deflator			6.3	5.6	4.5	4.1	5.3	5.6	5.8	5.6	5.5	5.5
CPI inflation (annual average)			5 4	5.8	5.5	5.5	5.5	5.9	5.8	5.6	5.5	5.5
CPI inflation (end of period)			5.9	5.5	5.5	6.0	5.6	5.9	5.7	5.5	5.5	5.5
Credit to private sector (end of period)			15.7	17.0	11.3	8.6	8.3	11.6	11.5	11.5	11.5	11.3
			(In percent of GDP)
Gross national savings			29.6	27.4	29.5	28.7	29.8	29.5	30.2	30.3	30.4	30.6
	Public national savings		0.9	2.2	0.7	1.2	2.2	0.8	1.5	1.3	1.3	1.2
	Private national savings		28.8	25.2	28.8	27.5	27.5	28.6	28.7	29.0	29.1	29.3
Gross investment			30.5	31.2	31.6	30.5	31.1	31.8	32.8	32.8	32.9	33.1
	Public investment		7.4	8.0	8.0	8.4	7.8	8.4	8.8	8.2	7.7	7.7
	Private investment		23.1	23.3	23.5	22.1	23.2	23.4	24.0	24.6	25.2	25.4
Net exports of goods and services			-5.2	-8.6	-5.1	-6.5	-7.5	-6.8	-6.6	-6.2	-5.5	-5.6
	Exports of goods and services		15.0	14.8	15.3	12.0	12.4	13.1	12.2	11.5	11.2	11.0
	Imports of goods and services		20.3	23.4	21.4	13.5	19.9	19.9	15.5	17.6	17.1	16.6
Current account balance			-0.5	-3.5	-1.5	-1.7	-1.3	-2.4	-2.6	-2.5	-2.5	-2.5
Central government operations
	Total revenue and grants		9.5	10.4	9.5	9.8	10.9	10.8	10.9	10.5	10.5	10.8
		Of which : Tax revenue	8.2	9.3	8.7	8.1	8.9	8.9	9.0	9.0	9.0	9.0
	Total expenditure		14.4	15.2	15.7	15.4	15.1	16.9	16.5	16.2	15.9	15.9
		Of which : Annual Development Program (ADP)	4.9	5.9	5.9	5.7	5.3	5.5	5.9	5.4	5.0	5.0
	Overall balance (including grants)		4.9	4.8	-5.3	-5.6	-4.2	-6.1	-5.7	-5.4	-5.0	-5.0
		(excluding grants)	-5.0	-4.5	-6.3	-5.7	-4.3	-6.1	-5.7	-5.4	-5.1	-5.0
	Primary balance (excluding grants)		-3.2	-3.0	-4.4	-3.6	-1.9	-3.7	-3.0	-2.7	-2.3	-2.2
Public sector total debt ^2/			33.4	34.6	36.1	39.5	41.4	42.5	42.7	42.6	42.3	42.1
		Of which : External debt	13.7	14.9	15.1	16.5	17.5	15.7	15.5	15.2	14.7	14.2
Memorandum item:
	Nominal GDP (in billions of taka)		19,758	22,505	25,425	27,393	30,284	34,086	38.610	43,699	49,400	55,792

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year begins July 1.

^{Table 3.}

Bangladesh: Balance of Payments, FY2017–26 ^1/

(In millions of U.S. dollars, unless otherwise indicated)

Sources: Bangladesh authorities; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1.

^{^2/}Imports are based on customs data.

^{^3/}Excludes official capital grants reported in the capital account.

^{^4/}Of identified amounts some are pending approval and some a re to be disbursed in 2020 after June.

^{^5/}Gross and net international reserves for the projection period do not include valuation adjustments, Net international reserves are reported at market exchange rates.

^{Table 3.}

Bangladesh: Balance of Payments, FY2017–26 ^1/

(In millions of U.S. dollars, unless otherwise indicated)

					FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26
									Est.	Proj.
Current account balance ^2/					-1,331	-9,567	-4,491	-5,435	-1,575	-9,403	-11,337	-12,105	-13,226	-14,599
Trade balance					-9,472	-18,178	-15,835	-18,569	-23,778	-24,623	-26,378	-26,951	-28,098	-29,593
	Exports (f.o.b.)				34,019	36,285	39,604	32,121	36,903	43,177	44,602	46,076	49,515	53,212
		Of which : Ready-made garment sector			28,150	30,615	34,133	27,949	31,457	36,700	37,801	38,936	41,661	45,410
	Imports (f.o.b.) 2/				-43,491	-54,463	-55,439	-50,690	-60,681	-67,800	-70,979	-73,027	-77,613	-82,804
		Of which : Crude oil and petroleum products			-3,112	-3,796	-4,479	-1,822	-8,087	-9,052	-10,183	-11,763	-12,350	-15,438
Services					-3,288	-4,202	-3,177	-2,578	-3,002	-2,494	-2,732	-2,773	-2,837	-2,950
Income					-1,870	-2,641	-2,382	-3,070	-3,172	-3,110	-3,467	-3,843	-4,181	-4,384
Transfers					13,299	15,454	16,903	18,782	25,377	20,824	21,240	21,462	21,890	22,327
	Official current transfers ^3/				59	52	41	19	33	40	40	50	50	50
	Private transfers				13,240	15,402	18,582	18,763	25,344	20,784	21,200	21,412	21,840	22,277
		Of which : Workers’ remittances			12,769	14,982	16,420	18,205	24,778	20,561	20,973	21,182	21,606	22,038
Capital and financial account balance ^4/					4,647	9,342	5,369	8,910	13,313	9,460	9,274	10,392	12,170	15,199
	Capital account				400	331	239	256	221	275	150	150	150	150
	Financial account				4,247	9,011	5,130	8,654	13,092	9,185	9,124	10,242	12,020	15,049
		Foreign direct investment			1,653	1,778	2,628	1,271	1,355	1,569	1,761	2,898	4,239	5,807
		Portfolio investment			457	349	171	44	-269	-180	176	290	424	581
		Medium- and long-term loans, net			2,170	5,015	5,363	6,238	6,992	6,646	6,606	6,474	6,777	8,081
			Government net		2,323	4,874	5,061	5,739	5,308	4,962	4,922	4,790	5,093	5,381
				Disbursements	3,218	5,987	6,263	6,996	6,726	6,700	6,748	6,893	7,042	7,392
				Amortization	-695	-1,113	-1,202	-1,257	-1,418	-1,738	-1,825	-2,103	-1,949	-2,011
Other long-term loans, net					-153	141	302	499	1,684	1,684	1,684	1,684	1,684	2,700
Other capital					-33	1,869	-3,032	1,101	5,014	1,130	580	580	580	580
			Short-term loans and trade credits, net		-155	238	-3,221	1,378	5,562	1,680	580	580	580	580
			Commercial banks, net		122	1,631	189	-277	-548	-550	0	0	0	0
			Other items, net		0	0	0	0	0	0	0	0	0	0
Errors and omissions					-147	-632	-700	-306	535	0	0	0	0	0
Overall balance					3,169	-857	178	3,169	9,273	57	-2,063	-1,713	-1,056	600
Financing items					-3,169	857	-178	-3,169	-9,273	-57	2,063	1,713	1,056	-600
Memorandum items:
	Current account balance (percent of GDP)				-0.5	-3.5	-1.5	-1.7	-1.3	-2.4	-2.6	-2.5	-2.5	-2.5
	Exports (annual percent change)				1.7	6.7	9.1	-18.9	14.3	17.0	3.3	3.3	7.5	7.5
	Imports (annual percent change)				9.0	25.2	1.8	-6.6	19.7	11.7	4.7	2.9	6.3	6.7
	Remittances (annual percent change)				-14.5	17.3	9.8	10.9	36.1	-17.0	2.0	1.0	2.0	2.0
	Foreign direct investment {percent of GDP)				0.7	0.6	0.9	0.4	0.4	0.4	0.4	0.6	0.8	1.0
	Medium- and long-term external public debt				33,671	39,935	45,562	53,140	62,434	65,611	68,624	72,413	76,542	81,191
		(Percent of GDP)			13.7	14.9	15.1	16.5	17.5	16.7	15.8	15.2	14.7	14.2
	Gross official reserves ^5/				33,407	32,944	32,717	36,037	46,391	47,732	45,508	43,443	42,075	42,597
		(In months of imports of goods and services)			6.3	6.0	6.5	6.1	7.0	6.9	6.4	5.8	5.2	5.0
	Net international reserves ^5/				29,970	29,745	30,623	34,099	42,837	42,894	40,831	39,118	38,062	38,662
	Nominal GDP				249,711	274,039	302,571	323,057	357,097	397,227	440,266	482,983	529,844	580,710

Sources: Bangladesh authorities; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1.

^{^2/}Imports are based on customs data.

^{^3/}Excludes official capital grants reported in the capital account.

^{^4/}Of identified amounts some are pending approval and some a re to be disbursed in 2020 after June.

^{^5/}Gross and net international reserves for the projection period do not include valuation adjustments, Net international reserves are reported at market exchange rates.

^{Table 3.}

Bangladesh: Balance of Payments, FY2017–26 ^1/

(In millions of U.S. dollars, unless otherwise indicated)

					FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26
									Est.	Proj.
Current account balance ^2/					-1,331	-9,567	-4,491	-5,435	-1,575	-9,403	-11,337	-12,105	-13,226	-14,599
Trade balance					-9,472	-18,178	-15,835	-18,569	-23,778	-24,623	-26,378	-26,951	-28,098	-29,593
	Exports (f.o.b.)				34,019	36,285	39,604	32,121	36,903	43,177	44,602	46,076	49,515	53,212
		Of which : Ready-made garment sector			28,150	30,615	34,133	27,949	31,457	36,700	37,801	38,936	41,661	45,410
	Imports (f.o.b.) 2/				-43,491	-54,463	-55,439	-50,690	-60,681	-67,800	-70,979	-73,027	-77,613	-82,804
		Of which : Crude oil and petroleum products			-3,112	-3,796	-4,479	-1,822	-8,087	-9,052	-10,183	-11,763	-12,350	-15,438
Services					-3,288	-4,202	-3,177	-2,578	-3,002	-2,494	-2,732	-2,773	-2,837	-2,950
Income					-1,870	-2,641	-2,382	-3,070	-3,172	-3,110	-3,467	-3,843	-4,181	-4,384
Transfers					13,299	15,454	16,903	18,782	25,377	20,824	21,240	21,462	21,890	22,327
	Official current transfers ^3/				59	52	41	19	33	40	40	50	50	50
	Private transfers				13,240	15,402	18,582	18,763	25,344	20,784	21,200	21,412	21,840	22,277
		Of which : Workers’ remittances			12,769	14,982	16,420	18,205	24,778	20,561	20,973	21,182	21,606	22,038
Capital and financial account balance ^4/					4,647	9,342	5,369	8,910	13,313	9,460	9,274	10,392	12,170	15,199
	Capital account				400	331	239	256	221	275	150	150	150	150
	Financial account				4,247	9,011	5,130	8,654	13,092	9,185	9,124	10,242	12,020	15,049
		Foreign direct investment			1,653	1,778	2,628	1,271	1,355	1,569	1,761	2,898	4,239	5,807
		Portfolio investment			457	349	171	44	-269	-180	176	290	424	581
		Medium- and long-term loans, net			2,170	5,015	5,363	6,238	6,992	6,646	6,606	6,474	6,777	8,081
			Government net		2,323	4,874	5,061	5,739	5,308	4,962	4,922	4,790	5,093	5,381
				Disbursements	3,218	5,987	6,263	6,996	6,726	6,700	6,748	6,893	7,042	7,392
				Amortization	-695	-1,113	-1,202	-1,257	-1,418	-1,738	-1,825	-2,103	-1,949	-2,011
Other long-term loans, net					-153	141	302	499	1,684	1,684	1,684	1,684	1,684	2,700
Other capital					-33	1,869	-3,032	1,101	5,014	1,130	580	580	580	580
			Short-term loans and trade credits, net		-155	238	-3,221	1,378	5,562	1,680	580	580	580	580
			Commercial banks, net		122	1,631	189	-277	-548	-550	0	0	0	0
			Other items, net		0	0	0	0	0	0	0	0	0	0
Errors and omissions					-147	-632	-700	-306	535	0	0	0	0	0
Overall balance					3,169	-857	178	3,169	9,273	57	-2,063	-1,713	-1,056	600
Financing items					-3,169	857	-178	-3,169	-9,273	-57	2,063	1,713	1,056	-600
Memorandum items:
	Current account balance (percent of GDP)				-0.5	-3.5	-1.5	-1.7	-1.3	-2.4	-2.6	-2.5	-2.5	-2.5
	Exports (annual percent change)				1.7	6.7	9.1	-18.9	14.3	17.0	3.3	3.3	7.5	7.5
	Imports (annual percent change)				9.0	25.2	1.8	-6.6	19.7	11.7	4.7	2.9	6.3	6.7
	Remittances (annual percent change)				-14.5	17.3	9.8	10.9	36.1	-17.0	2.0	1.0	2.0	2.0
	Foreign direct investment {percent of GDP)				0.7	0.6	0.9	0.4	0.4	0.4	0.4	0.6	0.8	1.0
	Medium- and long-term external public debt				33,671	39,935	45,562	53,140	62,434	65,611	68,624	72,413	76,542	81,191
		(Percent of GDP)			13.7	14.9	15.1	16.5	17.5	16.7	15.8	15.2	14.7	14.2
	Gross official reserves ^5/				33,407	32,944	32,717	36,037	46,391	47,732	45,508	43,443	42,075	42,597
		(In months of imports of goods and services)			6.3	6.0	6.5	6.1	7.0	6.9	6.4	5.8	5.2	5.0
	Net international reserves ^5/				29,970	29,745	30,623	34,099	42,837	42,894	40,831	39,118	38,062	38,662
	Nominal GDP				249,711	274,039	302,571	323,057	357,097	397,227	440,266	482,983	529,844	580,710

Sources: Bangladesh authorities; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1.

^{^2/}Imports are based on customs data.

^{^3/}Excludes official capital grants reported in the capital account.

^{^4/}Of identified amounts some are pending approval and some a re to be disbursed in 2020 after June.

^{^5/}Gross and net international reserves for the projection period do not include valuation adjustments, Net international reserves are reported at market exchange rates.

^{Table 4a.}

Bangladesh: Central Government Operations, FY2017–26 ^1/

(In billions of Taka)

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year begins Jury 1. Cash basis, unless otherwise specified.

^{^2/}Comprise budget allocations for safety net programs and other social-related spending, pensions and gratuities, and direct subsidies for food and to the agriculture and export sectors. Other subsidy-related costs (i.e., lending to large energy-related state-owned enterprises (SOEs)) are included in net lending.

^{^3/}Excludes net financing of autonomous and semi-autonomous government bodies, and government lending funds. Includes special bonds issued to the commercial banks for the noncash issued to the state-owned securitization of past subsidy-related loans made to Bangladesh Petroleum Corporation, consistent with the earlier treatment in the fiscal accounts of similar operations.

^{^4/}Includes food account surplus {-)/deficit [-) and extraordinary expenditures.

^{^5/}Includes National Savings Certificates, net purchase of Treausry securities by nonbank entities, and financing through the General Provident Fund.

^{Table 4a.}

Bangladesh: Central Government Operations, FY2017–26 ^1/

(In billions of Taka)

						FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26	FY27
								Prel.	Est.	Est.	Proj.
						(In billions of taka)
Total revenue and grants						1,875	2,344	2,404	2,635	3,305	5,673	4,199	4,732	5,342	6,052	6,827
	Total revenue					1,860	2,328	2,387	2,659	3,286	3,670	4,196	4,727	5,338	6,047	6,822
		Tax revenue				1,629	2,092	2,213	2,220	2,698	3,041	3,484	3,921	4,426	5,018	5,661
			National Board of Revenue (NBR) taxes			1,567	2,020	2,180	2,160	2,639	2,974	3,408	3,835	4,330	4,909	5,539
				Of which: VAT and supplementary duties		886	1,135	1,232	1,136	1,419	1,600	1,874	2,126	2,412	2,731	3,098
					Taxes on income and profits	460	607	669	754	873	983	1,113	1,260	-425	1,609	1,814
					Customs and excise duties	208	265	266	260	341	385	414	442	485	559	616
			Non-NBR taxes			60	72	32	59	59	67	75	85	97	109	123
	Nontax revenue					232	236	174	439	588	629	712	806	911	1,029	1,160
Foreign grants						15	16	17	26	19	3	4	5	5	5	5
Total expenditure						2,844	3,418	4,000	4,219	4,578	5,751	6,334	7,083	7,333	3,350	9,957
	Current expenditure					1,705	1,840	2,223	2,361	2,649	3,385	3,607	4,158	4,717	5,355	6,098
		Pay and allowances				500	494	549	569	589	698	790	894	1,011	1,142	1,287
		Goods and services				201	247	302	290	305	362	410	462	523	591	666
		Interest payments				357	423	500	533	706	834	1,017	1,185	1,355	1,558	1,817
		Subsidies and transfers ^2/				646	674	871	919	1,032	1,492	1,393	1,617	1,323	2,064	2,327
	Annual Development Program (ADP)					958	1,337	1,493	1,554	1,592	1,866	2,272	2,358	2,481	2,782	3,062
	Non-ADP capital spending					158	169	242	269	289	412	425	481	543	614	692
	Net lending ^3/					27	12	-10	12	6	45	39	44	49	56	63
	Other expenditures ^4/					-4	60	52	23	42	42	42	42	42	42	42
Overall balance (including grants]						-969	-1,074	-1,596	-1,535	-1,273	-2,078	-2,185	-2,351	-2,490	-2,798	-3,130
	(Excluding grants)					-934	-1,090	-1,613	-1,560	-1,292	-3,081	-2,188	-2,356	-2,495	-2,803	-3,135
Primary balance (including grants)						-612	-651	-1,096	-951	-567	-1,244	-1,168	-1,167	-1,135	-1,239	-1,313
(Excluding grants)						-627	-667	-1,113	-977	-586	-1,247	-1,171	-1,171	-1,140	-1,244	-1,318
Net financing						969	1,074	1,596	1,535	1,272	2,073	2,133	2,351	2,490	2,798	3,130
	External					136	253	313	416	455	426	432	433	475	517	593
		Disbursements				209	344	421	529	575	575	592	624	657	710	813
		Amortization				-73	-91	-108	-113	-120	-149	-160	-190	-182	-153	-220
Domestic						833	821	1,283	1,119	818	1,652	1,753	1,918	2,016	2,281	2,537
		Banks				-258	117	-607	793	284	873	1,242	1,359	1,428	1,616	1,798
			of which: Fiscal Gap			0	0	0	0	0	0	0	0	0	0	1
		Nonbanks ^5/				1,091	703	1,890	326	533	779	511	559	587	664	739

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year begins Jury 1. Cash basis, unless otherwise specified.

^{^4/}Includes food account surplus {-)/deficit [-) and extraordinary expenditures.

^{^5/}Includes National Savings Certificates, net purchase of Treausry securities by nonbank entities, and financing through the General Provident Fund.

^{Table 4a.}

Bangladesh: Central Government Operations, FY2017–26 ^1/

(In billions of Taka)

						FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26	FY27
								Prel.	Est.	Est.	Proj.
						(In billions of taka)
Total revenue and grants						1,875	2,344	2,404	2,635	3,305	5,673	4,199	4,732	5,342	6,052	6,827
	Total revenue					1,860	2,328	2,387	2,659	3,286	3,670	4,196	4,727	5,338	6,047	6,822
		Tax revenue				1,629	2,092	2,213	2,220	2,698	3,041	3,484	3,921	4,426	5,018	5,661
			National Board of Revenue (NBR) taxes			1,567	2,020	2,180	2,160	2,639	2,974	3,408	3,835	4,330	4,909	5,539
				Of which: VAT and supplementary duties		886	1,135	1,232	1,136	1,419	1,600	1,874	2,126	2,412	2,731	3,098
					Taxes on income and profits	460	607	669	754	873	983	1,113	1,260	-425	1,609	1,814
					Customs and excise duties	208	265	266	260	341	385	414	442	485	559	616
			Non-NBR taxes			60	72	32	59	59	67	75	85	97	109	123
	Nontax revenue					232	236	174	439	588	629	712	806	911	1,029	1,160
Foreign grants						15	16	17	26	19	3	4	5	5	5	5
Total expenditure						2,844	3,418	4,000	4,219	4,578	5,751	6,334	7,083	7,333	3,350	9,957
	Current expenditure					1,705	1,840	2,223	2,361	2,649	3,385	3,607	4,158	4,717	5,355	6,098
		Pay and allowances				500	494	549	569	589	698	790	894	1,011	1,142	1,287
		Goods and services				201	247	302	290	305	362	410	462	523	591	666
		Interest payments				357	423	500	533	706	834	1,017	1,185	1,355	1,558	1,817
		Subsidies and transfers ^2/				646	674	871	919	1,032	1,492	1,393	1,617	1,323	2,064	2,327
	Annual Development Program (ADP)					958	1,337	1,493	1,554	1,592	1,866	2,272	2,358	2,481	2,782	3,062
	Non-ADP capital spending					158	169	242	269	289	412	425	481	543	614	692
	Net lending ^3/					27	12	-10	12	6	45	39	44	49	56	63
	Other expenditures ^4/					-4	60	52	23	42	42	42	42	42	42	42
Overall balance (including grants]						-969	-1,074	-1,596	-1,535	-1,273	-2,078	-2,185	-2,351	-2,490	-2,798	-3,130
	(Excluding grants)					-934	-1,090	-1,613	-1,560	-1,292	-3,081	-2,188	-2,356	-2,495	-2,803	-3,135
Primary balance (including grants)						-612	-651	-1,096	-951	-567	-1,244	-1,168	-1,167	-1,135	-1,239	-1,313
(Excluding grants)						-627	-667	-1,113	-977	-586	-1,247	-1,171	-1,171	-1,140	-1,244	-1,318
Net financing						969	1,074	1,596	1,535	1,272	2,073	2,133	2,351	2,490	2,798	3,130
	External					136	253	313	416	455	426	432	433	475	517	593
		Disbursements				209	344	421	529	575	575	592	624	657	710	813
		Amortization				-73	-91	-108	-113	-120	-149	-160	-190	-182	-153	-220
Domestic						833	821	1,283	1,119	818	1,652	1,753	1,918	2,016	2,281	2,537
		Banks				-258	117	-607	793	284	873	1,242	1,359	1,428	1,616	1,798
			of which: Fiscal Gap			0	0	0	0	0	0	0	0	0	0	1
		Nonbanks ^5/				1,091	703	1,890	326	533	779	511	559	587	664	739

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year begins Jury 1. Cash basis, unless otherwise specified.

^{^4/}Includes food account surplus {-)/deficit [-) and extraordinary expenditures.

^{^5/}Includes National Savings Certificates, net purchase of Treausry securities by nonbank entities, and financing through the General Provident Fund.

^{Table 4b.}

Bangladesh: Central Government Operations, FY2017–26 ^1/

(In percent of GDP)

Sources: Bangladesh authorities; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1. Cash basis unless otherwise specified.

^{^2/}Comprise budget allocations for safety net programs and other social-related spending. pensions and gratuities. and direct subsidies for food and to the agriculture and export sectors Other subsidy-related costs (i.e., lending to large energy-related state-med enterprises (508)) are included in net lending.

^{^3/}Excludes net ﬁnancing of autonomous and semi-autonomous government bodies. and government lending funds. Includes special bonds issued to the commercial banks for the noncash issued to the state~owned securitization of past subsidy-related loans made to Bangladesh Petroleum Corporation consistent with the earlier treatment in the ﬁscal accounts of similar operations.

^{^4/}Includes food account surplus (+)/deﬁcit (-) and extraordinary expenditures.

^{^5/}Includes National Savings Certiﬁcates. net purchase of Treausry securities by nonbank entities, and ﬁnancing through the General Provident Fund.

^{Table 4b.}

Bangladesh: Central Government Operations, FY2017–26 ^1/

(In percent of GDP)

						FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26
								Pre.	Est.	Est.	Proj.
						(In percent of GDP)
Total revenue and grants						9.5	10.4	9.5	9.3	10.9	10.8	10.9	10.8	10.8	10.8
	Total revenue					9.4	10.3	9.4	9.7	10.9	10.5	10.9	10.8	10.8	10.8
		Tax revenue				8.2	9.3	8.7	8.1	8.9	8.9	9.0	9.0	9.0	9.0
			National Board of Revenue (NBR) taxes			7.9	9.0	8.6	7.9	8.7	8.7	8.8	5.3	8.8	8.8
				Of which : VAT and supplementary duties		4.5	5.0	4.8	4.1	4.7	4.7	4.9	4.9	4.9	4.9
					Taxes on income and profits	2.3	2.7	2.6	2.8	2.5	2.9	2.5	2.9	2.5	2.9
					Customs and excise duties	1.1	1.2	1.0	0.9	1.1	1.1	1.1	1.0	1.0	1.0
			Non-NBR taxes			0.3	0.3	0.1	0.2	0.2	0.2	0.2	0.2	0.2	0.2
	Nontax revenue					1.2	1.0	0.7	1.6	1.9	1.3	1.3	1.3	1.3	1.8
Foreign grants						0.1	0.1	0.1	0.1	0.1	0.0	0.0	0.0	0.0	0.0
Total expenditure						14.4	15.2	15.7	15.4	15.1	16.9	16.5	16.2	15.9	15.9
Current expenditure						8.6	8.2	8.7	8.6	8.7	9.9	9.2	9.5	9.5	9.6
		Pay and allowances				2.5	2.2	2.2	2.1	1.9	2.0	2.0	2.0	2.0	2.0
		Goods and services				1.0	1.1	1.2	1.1	1.0	1.1	1.1	1.1	1.1	1.1
		Interest payments				1.8	1.9	2.0	2.1	2.3	2.4	2.6	2.7	2.7	2.8
		Subsidies and transfers ^2/				3.3	3.0	3.4	3.4	3.4	4.4	3.6	3.7	3.7	3.7
	Annual Development Program (ADP)					4.9	5.9	5.9	5.7	5.3	5.5	5.9	5.4	5.0	5.0
	Non-ADP capital spending					0.8	0.8	1.0	1.0	1.0	1.2	1.1	1.1	1.1	1.1
	Net lending ^3/					0.1	0.1	0.0	0.0	0.0	0.1	0.1	0.1	0.1	0.1
	Other expenditures ^4/					0.0	0.3	0.2	0.1	0.1	0.1	0.1	0.1	0.1	0.1
Overall balance {including grants)						-4.9	-4.8	-6.3	-5.6	-4.2	-6.1	-5.7	-5.4	-5.0	-5.0
(Excluding grants)						-5.0	-4.8	-6.3	-5.7	-4.3	-6.1	-5.7	-5.4	-5.1	-5.0
Primary balance {including grants)						-3.1	-2.9	-4.3	-3.5	-1.9	-3.6	-3.0	-2.7	-2.3	-2.2
	(Excluding grants)					-3.2	-3.0	-4.4	-3.6	-1.9	-3.7	-3.0	-2.7	-2.3	-2.2
Net financing						4.9	4.8	6.3	5.6	4.2	6.1	5.7	5.4	5.0	5.0
	External					0.7	1.1	1.2	1.5	1.5	1.2	1.1	1.0	1.0	0.9
		Disbursements				1.1	1.5	1.7	1.9	1.9	1.7	1.5	1.4	1.3	1.3
		Amortization				-0.4	-0.4	-0.4	-0.4	-0.4	-0.4	-0.4	-0.4	-0.4	-0.3
	Domestic					4.2	3.6	5.0	4.1	2.7	4.8	4.5	4.4	4.1	4.1
		Banks				-1.3	0.5	-2.4	2.9	0.9	2.6	3.2	3.1	2.9	2.9
			of which: Fiscal Gap			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Nonbanks ^5/				5.5	3.1	7.4	1.2	1.8	2.3	1.3	1.3	1.2	1.2
	Total central government debt percent of GDP)					33.4	34.6	36.1	39.5	41.4	42.5	42.7	42.6	42.3	42.1
	Nominal GDP (in billions of taka)					19,753	22,505	25,425	27,393	30,234	34,036	33,610	43,699	49,400	55,792

Sources: Bangladesh authorities; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1. Cash basis unless otherwise specified.

^{^4/}Includes food account surplus (+)/deﬁcit (-) and extraordinary expenditures.

^{^5/}Includes National Savings Certiﬁcates. net purchase of Treausry securities by nonbank entities, and ﬁnancing through the General Provident Fund.

^{Table 4b.}

Bangladesh: Central Government Operations, FY2017–26 ^1/

(In percent of GDP)

						FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26
								Pre.	Est.	Est.	Proj.
						(In percent of GDP)
Total revenue and grants						9.5	10.4	9.5	9.3	10.9	10.8	10.9	10.8	10.8	10.8
	Total revenue					9.4	10.3	9.4	9.7	10.9	10.5	10.9	10.8	10.8	10.8
		Tax revenue				8.2	9.3	8.7	8.1	8.9	8.9	9.0	9.0	9.0	9.0
			National Board of Revenue (NBR) taxes			7.9	9.0	8.6	7.9	8.7	8.7	8.8	5.3	8.8	8.8
				Of which : VAT and supplementary duties		4.5	5.0	4.8	4.1	4.7	4.7	4.9	4.9	4.9	4.9
					Taxes on income and profits	2.3	2.7	2.6	2.8	2.5	2.9	2.5	2.9	2.5	2.9
					Customs and excise duties	1.1	1.2	1.0	0.9	1.1	1.1	1.1	1.0	1.0	1.0
			Non-NBR taxes			0.3	0.3	0.1	0.2	0.2	0.2	0.2	0.2	0.2	0.2
	Nontax revenue					1.2	1.0	0.7	1.6	1.9	1.3	1.3	1.3	1.3	1.8
Foreign grants						0.1	0.1	0.1	0.1	0.1	0.0	0.0	0.0	0.0	0.0
Total expenditure						14.4	15.2	15.7	15.4	15.1	16.9	16.5	16.2	15.9	15.9
Current expenditure						8.6	8.2	8.7	8.6	8.7	9.9	9.2	9.5	9.5	9.6
		Pay and allowances				2.5	2.2	2.2	2.1	1.9	2.0	2.0	2.0	2.0	2.0
		Goods and services				1.0	1.1	1.2	1.1	1.0	1.1	1.1	1.1	1.1	1.1
		Interest payments				1.8	1.9	2.0	2.1	2.3	2.4	2.6	2.7	2.7	2.8
		Subsidies and transfers ^2/				3.3	3.0	3.4	3.4	3.4	4.4	3.6	3.7	3.7	3.7
	Annual Development Program (ADP)					4.9	5.9	5.9	5.7	5.3	5.5	5.9	5.4	5.0	5.0
	Non-ADP capital spending					0.8	0.8	1.0	1.0	1.0	1.2	1.1	1.1	1.1	1.1
	Net lending ^3/					0.1	0.1	0.0	0.0	0.0	0.1	0.1	0.1	0.1	0.1
	Other expenditures ^4/					0.0	0.3	0.2	0.1	0.1	0.1	0.1	0.1	0.1	0.1
Overall balance {including grants)						-4.9	-4.8	-6.3	-5.6	-4.2	-6.1	-5.7	-5.4	-5.0	-5.0
(Excluding grants)						-5.0	-4.8	-6.3	-5.7	-4.3	-6.1	-5.7	-5.4	-5.1	-5.0
Primary balance {including grants)						-3.1	-2.9	-4.3	-3.5	-1.9	-3.6	-3.0	-2.7	-2.3	-2.2
	(Excluding grants)					-3.2	-3.0	-4.4	-3.6	-1.9	-3.7	-3.0	-2.7	-2.3	-2.2
Net financing						4.9	4.8	6.3	5.6	4.2	6.1	5.7	5.4	5.0	5.0
	External					0.7	1.1	1.2	1.5	1.5	1.2	1.1	1.0	1.0	0.9
		Disbursements				1.1	1.5	1.7	1.9	1.9	1.7	1.5	1.4	1.3	1.3
		Amortization				-0.4	-0.4	-0.4	-0.4	-0.4	-0.4	-0.4	-0.4	-0.4	-0.3
	Domestic					4.2	3.6	5.0	4.1	2.7	4.8	4.5	4.4	4.1	4.1
		Banks				-1.3	0.5	-2.4	2.9	0.9	2.6	3.2	3.1	2.9	2.9
			of which: Fiscal Gap			0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
		Nonbanks ^5/				5.5	3.1	7.4	1.2	1.8	2.3	1.3	1.3	1.2	1.2
	Total central government debt percent of GDP)					33.4	34.6	36.1	39.5	41.4	42.5	42.7	42.6	42.3	42.1
	Nominal GDP (in billions of taka)					19,753	22,505	25,425	27,393	30,234	34,036	33,610	43,699	49,400	55,792

Sources: Bangladesh authorities; and IMF staff estimates and projections,

^{^1/}Fiscal year begins July 1. Cash basis unless otherwise specified.

^{^4/}Includes food account surplus (+)/deﬁcit (-) and extraordinary expenditures.

^{^5/}Includes National Savings Certiﬁcates. net purchase of Treausry securities by nonbank entities, and ﬁnancing through the General Provident Fund.

^{Table 5.}

Bangladesh: Monetary Accounts, FY2017–26

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^1/}Includes special bonds issued to the commercial banks for the noncash issued to the state-owned securitization of past subsidy-related loans made to Bangladesh Petroleum Corporation. Excludes government lending fund and net credit to autonomous and semi-autonomous government bodies. Excluded items are included in "Other items, net”

^{^2/}Liabilities arising from banks’ foreign currency clearing accounts at BB and nonbank deposits at BB are included in ‘Other items, net."

^{Table 5.}

Bangladesh: Monetary Accounts, FY2017–26

					FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26
									Est.	Proj.
Bangladesh Bank (BB) balance sheet					(End of period; in billions of taka)
	Net foreign assets				2,115	2,327	2,351	2,903	3,641	3,729	3,646	3,601	3,611	3,780
	Net domestic assets				131	10	111	-58	-161	98	707	1,325	1,958	2,443
		Net credit to central government ^1/			118	170	269	368	275	275	275	275	275	275
		Credit to other nonfinancial public sector			12	12	12	12	12	52	52	92	92	92
		Credit to deposit money banks			43	55	52	68	189	189	189	189	189	189
		Other items, net			-41	-227	-223	-506	-636	-418	192	770	1,402	1,888
	Reserve money ^2/				2,247	2,337	2,462	2,845	3,480	3,827	4,353	4,926	5,569	6,223
		Currency			1,513	1,549	1,704	2,081	2,269	2,395	5,289	5,723	4,203	4,686
		Reserves			727	780	750	758	1,206	934	1,064	1,204	1,361	1,537
					(Contributions to reserve money growth)
	Net foreign assets				-0.1	9.4	1.0	22.4	25.9	2.5	-2.2	-1.0	0.2	3.0
	Net domestic assets				16.8	-5.4	4.3	-6.8	-3.6	7.4	15.9	14.2	12.3	3.7
		Of which: Net credit to central government			-3.0	2.3	4.3	4.0	-3.3	0.0	0.0	0.0	0.0	0.0
	Reserve money (year-on-year percentage change)				16.6	4.0	5.3	15.5	22.3	10.0	13.7	13.2	13.0	11.7
					(End of period; in billions of taka)
Monetary survey
	Net foreign assets				2,352	2,544	2,616	3,179	3,913	3,901	3,822	3,784	3,799	3,973
		Bangladesh Bank			2,115	2,327	2,351	2,903	3,641	3,729	3,646	3,601	3,611	3,780
		Commercial banks			237	216	265	276	272	172	177	182	133	194
	Net domestic assets				7,802	8,549	9,572	10,552	11,687	14,039	16,584	19,313	22,310	25,515
		Domestic credit			8,846	10,131	11,373	12,942	14,245	16,481	19,270	22,348	25,695	29,406
			Net credit to central government ^1/		913	863	1,039	1,677	2,057	2,950	4,172	5,531	6,960	3,576
			Credit to other nonfinancial public sector		91	104	123	175	181	193	205	219	233	248
			Credit to nonbank financial institutions		82	88	111	117	119	92	97	101	104	106
			Credit to private sector		7,761	9,076	10,100	10,973	11,889	13,267	14,796	16,497	18,398	20,476
		Other items, net			-1,044	-1,583	-1,806	-2,389	-2,559	-2,442	-2,686	-3,035	-3,384	-3,892
	Broad money (M2)				10,154	11,092	12,133	15,731	15,599	17,940	20,407	25,097	26,110	29,488
					(year-on-year percent change)
	Net foreign assets				0.9	8.2	2.9	21.5	23.1	-0.3	-2.0	-1.0	0.4	4.6
	Net domestic assets				14.3	9.6	12.0	10.2	10.7	20.1	18.1	16.5	15.5	14.4
		Domestic credit			6.7	14.5	12.3	15.7	10.1	15.7	16.9	16.0	15.0	14.4
			Of which: Net credit to central government		-35.9	-5.4	20.4	61.4	22.7	42.4	42.4	32.6	25.8	23.2
				Credit to private sector	15.7	17.0	11.3	8.6	8.3	11.6	11.5	11.5	11.5	11.3
	Broad money (M2)				10.9	9.2	9.9	12.7	13.6	15.0	13.7	13.2	13.0	12.9
Memorandum items:
	Required domestic cash reserves (in billions of taka)				512	524	556	685	773	392	1,016	1,150	1,299	1,468
	Excess domestic cash reserves (in billions of taka)				215	256	214	75	433	42	48	54	61	69
	Broad money multiplier				4.5	4.7	5.0	4.8	4.5	4.7	4.7	4.7	4.7	4.7
	Broad money velocity				1.9	2.0	2.1	2.0	1.9	1.9	1.9	1.9	1.9	1.9

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^2/}Liabilities arising from banks’ foreign currency clearing accounts at BB and nonbank deposits at BB are included in ‘Other items, net."

^{Table 5.}

Bangladesh: Monetary Accounts, FY2017–26

					FY17	FY18	FY19	FY20	FY21	FY22	FY23	FY24	FY25	FY26
									Est.	Proj.
Bangladesh Bank (BB) balance sheet					(End of period; in billions of taka)
	Net foreign assets				2,115	2,327	2,351	2,903	3,641	3,729	3,646	3,601	3,611	3,780
	Net domestic assets				131	10	111	-58	-161	98	707	1,325	1,958	2,443
		Net credit to central government ^1/			118	170	269	368	275	275	275	275	275	275
		Credit to other nonfinancial public sector			12	12	12	12	12	52	52	92	92	92
		Credit to deposit money banks			43	55	52	68	189	189	189	189	189	189
		Other items, net			-41	-227	-223	-506	-636	-418	192	770	1,402	1,888
	Reserve money ^2/				2,247	2,337	2,462	2,845	3,480	3,827	4,353	4,926	5,569	6,223
		Currency			1,513	1,549	1,704	2,081	2,269	2,395	5,289	5,723	4,203	4,686
		Reserves			727	780	750	758	1,206	934	1,064	1,204	1,361	1,537
					(Contributions to reserve money growth)
	Net foreign assets				-0.1	9.4	1.0	22.4	25.9	2.5	-2.2	-1.0	0.2	3.0
	Net domestic assets				16.8	-5.4	4.3	-6.8	-3.6	7.4	15.9	14.2	12.3	3.7
		Of which: Net credit to central government			-3.0	2.3	4.3	4.0	-3.3	0.0	0.0	0.0	0.0	0.0
	Reserve money (year-on-year percentage change)				16.6	4.0	5.3	15.5	22.3	10.0	13.7	13.2	13.0	11.7
					(End of period; in billions of taka)
Monetary survey
	Net foreign assets				2,352	2,544	2,616	3,179	3,913	3,901	3,822	3,784	3,799	3,973
		Bangladesh Bank			2,115	2,327	2,351	2,903	3,641	3,729	3,646	3,601	3,611	3,780
		Commercial banks			237	216	265	276	272	172	177	182	133	194
	Net domestic assets				7,802	8,549	9,572	10,552	11,687	14,039	16,584	19,313	22,310	25,515
		Domestic credit			8,846	10,131	11,373	12,942	14,245	16,481	19,270	22,348	25,695	29,406
			Net credit to central government ^1/		913	863	1,039	1,677	2,057	2,950	4,172	5,531	6,960	3,576
			Credit to other nonfinancial public sector		91	104	123	175	181	193	205	219	233	248
			Credit to nonbank financial institutions		82	88	111	117	119	92	97	101	104	106
			Credit to private sector		7,761	9,076	10,100	10,973	11,889	13,267	14,796	16,497	18,398	20,476
		Other items, net			-1,044	-1,583	-1,806	-2,389	-2,559	-2,442	-2,686	-3,035	-3,384	-3,892
	Broad money (M2)				10,154	11,092	12,133	15,731	15,599	17,940	20,407	25,097	26,110	29,488
					(year-on-year percent change)
	Net foreign assets				0.9	8.2	2.9	21.5	23.1	-0.3	-2.0	-1.0	0.4	4.6
	Net domestic assets				14.3	9.6	12.0	10.2	10.7	20.1	18.1	16.5	15.5	14.4
		Domestic credit			6.7	14.5	12.3	15.7	10.1	15.7	16.9	16.0	15.0	14.4
			Of which: Net credit to central government		-35.9	-5.4	20.4	61.4	22.7	42.4	42.4	32.6	25.8	23.2
				Credit to private sector	15.7	17.0	11.3	8.6	8.3	11.6	11.5	11.5	11.5	11.3
	Broad money (M2)				10.9	9.2	9.9	12.7	13.6	15.0	13.7	13.2	13.0	12.9
Memorandum items:
	Required domestic cash reserves (in billions of taka)				512	524	556	685	773	392	1,016	1,150	1,299	1,468
	Excess domestic cash reserves (in billions of taka)				215	256	214	75	433	42	48	54	61	69
	Broad money multiplier				4.5	4.7	5.0	4.8	4.5	4.7	4.7	4.7	4.7	4.7
	Broad money velocity				1.9	2.0	2.1	2.0	1.9	1.9	1.9	1.9	1.9	1.9

Sources: Bangladesh authorities; and IMF staff estimates and projections.

^{^2/}Liabilities arising from banks’ foreign currency clearing accounts at BB and nonbank deposits at BB are included in ‘Other items, net."

^{Table 6.}

Bangladesh: Financial Soundness Indicators, FY2010–20

(In percent)

Source: Bangladesh Bank

^{Table 6.}

Bangladesh: Financial Soundness Indicators, FY2010–20

(In percent)

			FY10	FY11	FY12	FY13	FY14	FY15	FY16	FY17	FY18	FY19	FY20
Capital adequacy
	Regulatory capital to risk-weighted assets		9.3	11.4	10.5	11.5	11.3	10.8	10.8	10.8	12.1	11.6	11.6
		State-owned commercial banks	8.9	11.7	8.1	10.8	8.3	6.4	5.9	7.0	10.3	5.0	6.9
		Private commercial banks	10.1	11.5	11.4	12.6	12.5	12.4	12.4	12.2	12.8	13.6	13.3
		Foreign commercial banks	15.6	21.0	20.6	20.2	22.6	25.6	25.4	23.3	25.9	24.5	24.4
Asset quality
	Nonperforming loans to total loans		7.3	6.1	10.0	8.9	10.0	8.8	9.2	9.3	10.3	9.3	9.2
		State-owned commercial banks	15.7	11.3	23.9	19.8	22.2	21.5	25.1	26.5	30.0	23.9	22.7
		Private commercial banks	3.2	2.9	4.6	4.5	4.9	4.9	4.6	4.9	5.5	5.8	5.9
		Foreign commercial banks	3.0	3.0	3.5	5.5	7.3	7.8	9.6	7.0	6.5	5.7	5.5
	Loan provisions to total nonperforming loans		62.7	67.4	44.4	61.6	56.1	44.8	49.4	50.5	53.7	68.5	63.4
	Loan provisions to total loans		4.6	4.1	4.4	5.5	5.6	3.9	4.5	4.7	5.5	6.4	5.8
Management
	Expenditure-income Ratio		70.8	68.6	74.0	77.8	76.1	76.3	76.6	74.7	76.6	78.0	84.1
		State-owned commercial banks	80.7	62.7	73.2	84.1	84.1	84.5	90.2	81.3	80.5	84.9	85.8
		Private commercial banks	67.6	71.7	76.0	77.9	75.8	75.5	73.5	73.8	76.7	77.6	82.6
		Foreign commercial banks	64.7	47.3	49.6	50.4	46.8	47.0	45.7	46.6	47.5	48.8	45.5
Earnings
	Return on equity (BB)		21.0	17.0	8.2	11.0	8.1	10.5	9.4	10.6	3.9	6.8	6.7
		State-owned commercial banks	18.4	19.7	-11.9	10.9	-13.5	-1.5	-6.0	3.5	-29.6	-13.7	0.8
		Private commercial banks	20.9	15.7	10.2	9.8	10.3	10.8	11.1	12.0	11.0	11.2	8.5
		Foreign commercial banks	17.0	16.6	17.3	16.9	17.7	14.6	13.1	11.3	12.4	13.4	13.8
	Return on assets (BB)		1.8	1.5	0.6	0.9	0.6	0.8	0.7	0.7	0.3	0.4	0.4
		State-owned commercial banks	1.1	1.3	-0.6	0.6	-0.6	0.0	-0.2	0.2	-1.3	-0.6	0.0
		Private commercial banks	2.1	1.6	0.9	1.0	1.0	1.0	1.0	0.9	0.8	0.8	0.6
		Foreign commercial banks	2.9	3.2	3.3	3.0	3.4	2.9	2.6	2.2	2.2	2.3	2.2
Liquidity
	Liquidity Ratio		23.0	25.4	27.1	32.5	32.7	26.5	24.9	19.9	18.2	19.9	22.3
		State-owned commercial banks	27.2	31.3	29.2	44.3	42.0	41.4	40.0	30.4	24.8	27.3	30.8
		Private commercial banks	21.5	23.5	26.3	28.0	28.2	19.7	17.8	14.8	14.2	16.4	18.0
		Foreign commercial banks	32.1	34.1	37.5	46.2	56.9	51.8	48.2	43.8	48.4	29.7	37.9

Source: Bangladesh Bank

^{Table 6.}

Bangladesh: Financial Soundness Indicators, FY2010–20

(In percent)

			FY10	FY11	FY12	FY13	FY14	FY15	FY16	FY17	FY18	FY19	FY20
Capital adequacy
	Regulatory capital to risk-weighted assets		9.3	11.4	10.5	11.5	11.3	10.8	10.8	10.8	12.1	11.6	11.6
		State-owned commercial banks	8.9	11.7	8.1	10.8	8.3	6.4	5.9	7.0	10.3	5.0	6.9
		Private commercial banks	10.1	11.5	11.4	12.6	12.5	12.4	12.4	12.2	12.8	13.6	13.3
		Foreign commercial banks	15.6	21.0	20.6	20.2	22.6	25.6	25.4	23.3	25.9	24.5	24.4
Asset quality
	Nonperforming loans to total loans		7.3	6.1	10.0	8.9	10.0	8.8	9.2	9.3	10.3	9.3	9.2
		State-owned commercial banks	15.7	11.3	23.9	19.8	22.2	21.5	25.1	26.5	30.0	23.9	22.7
		Private commercial banks	3.2	2.9	4.6	4.5	4.9	4.9	4.6	4.9	5.5	5.8	5.9
		Foreign commercial banks	3.0	3.0	3.5	5.5	7.3	7.8	9.6	7.0	6.5	5.7	5.5
	Loan provisions to total nonperforming loans		62.7	67.4	44.4	61.6	56.1	44.8	49.4	50.5	53.7	68.5	63.4
	Loan provisions to total loans		4.6	4.1	4.4	5.5	5.6	3.9	4.5	4.7	5.5	6.4	5.8
Management
	Expenditure-income Ratio		70.8	68.6	74.0	77.8	76.1	76.3	76.6	74.7	76.6	78.0	84.1
		State-owned commercial banks	80.7	62.7	73.2	84.1	84.1	84.5	90.2	81.3	80.5	84.9	85.8
		Private commercial banks	67.6	71.7	76.0	77.9	75.8	75.5	73.5	73.8	76.7	77.6	82.6
		Foreign commercial banks	64.7	47.3	49.6	50.4	46.8	47.0	45.7	46.6	47.5	48.8	45.5
Earnings
	Return on equity (BB)		21.0	17.0	8.2	11.0	8.1	10.5	9.4	10.6	3.9	6.8	6.7
		State-owned commercial banks	18.4	19.7	-11.9	10.9	-13.5	-1.5	-6.0	3.5	-29.6	-13.7	0.8
		Private commercial banks	20.9	15.7	10.2	9.8	10.3	10.8	11.1	12.0	11.0	11.2	8.5
		Foreign commercial banks	17.0	16.6	17.3	16.9	17.7	14.6	13.1	11.3	12.4	13.4	13.8
	Return on assets (BB)		1.8	1.5	0.6	0.9	0.6	0.8	0.7	0.7	0.3	0.4	0.4
		State-owned commercial banks	1.1	1.3	-0.6	0.6	-0.6	0.0	-0.2	0.2	-1.3	-0.6	0.0
		Private commercial banks	2.1	1.6	0.9	1.0	1.0	1.0	1.0	0.9	0.8	0.8	0.6
		Foreign commercial banks	2.9	3.2	3.3	3.0	3.4	2.9	2.6	2.2	2.2	2.3	2.2
Liquidity
	Liquidity Ratio		23.0	25.4	27.1	32.5	32.7	26.5	24.9	19.9	18.2	19.9	22.3
		State-owned commercial banks	27.2	31.3	29.2	44.3	42.0	41.4	40.0	30.4	24.8	27.3	30.8
		Private commercial banks	21.5	23.5	26.3	28.0	28.2	19.7	17.8	14.8	14.2	16.4	18.0
		Foreign commercial banks	32.1	34.1	37.5	46.2	56.9	51.8	48.2	43.8	48.4	29.7	37.9

Source: Bangladesh Bank

^{Table 7.}

Bangladesh: Sustainable Development Goals

Sources: SDG tracker, Sustainable Development Goals Bangladesh Progress Report 2020, Bangladesh Planning Commission.

^{Table 7.}

Bangladesh: Sustainable Development Goals

Goals	Selected Indicator	Earlier Observation		Latest Observation		Target
		Year		Year		2020	2025	2030
End Poverty	Proportion of population living below the International poverty line (%)	2010	19.6	2016	14.8	9.3	4.8	0
End Hunger	Prevalence of undernourishment (%)	2010	17.2	2019	14.7	14	12	10
Good Health and Well Being	Maternal Mortality Ratio (per 100,000)	2010	216	2019	165	105	85	70
Inclusive and Equitable Education	Participation rate in organized learning (%)	2015	39	2019	77.5	80	90	100
Gender Equality	Proportion of seats held by women in local governments (%)	2016	23	2018	25.2	25	27	33
Clean Water and Sanitation	Proportion of population using safely managed drinking water services (%)			2019	47.9		100	100
Affordable and Clean Energy	Proportion of population with access to electricity (%)	2010	55.2	2019	92.2	96	100	100
Sustainable Growth and Decent Work	Annual growth rate of real GDP per capita (%)	2010	4.1	2018–19	6.91	6.7	7	7.5
Industry, Innovation, and Infrastructure	Manufacturing employment as a percentage of total employment (%)	2010	12.4	2016–17	14.4	20	22	25
Reduce Inequality	Growth rates of household expenditure among the bottom 40 percent (%)	2016	3.1	2018	7.7	8	9	10
Cities and Communities	Proportion of urban population living in slums (%)			2014	55.1	40	30	20
Responsible Consumption and Production	Amount of fossil-fuel subsidies per unit of GDP (production and consumption, %)	2014–15	0.04	2018–19	0.6		0.02	0.01
Climate Action	Number of deaths, missing persons and directly affected persons attributed to disasters (per 100,000)	2015	12,881	2019	4,318	6,500	3,500	1,500
Life Below Water	Coverage of protected areas in relation to marine areas (%)	2015	2.05	2020	5.27	10	10	10
Life on Land	Forest area as a proportion of total land area (%)	2015	14.1	2018	14.5	15	18	20
Peace, Justice, and Strong Institutions	Unsentenced detainees as a percentage of overall prison population (%)	2016	76.5	2018	83.6	70	50	40
Partnerships for the Goals	Fixed internet broadband subscriptions (%)	2015	2.41	2019	4.8	8	15	20

Sources: SDG tracker, Sustainable Development Goals Bangladesh Progress Report 2020, Bangladesh Planning Commission.

^{Table 7.}

Bangladesh: Sustainable Development Goals

Goals	Selected Indicator	Earlier Observation		Latest Observation		Target
		Year		Year		2020	2025	2030
End Poverty	Proportion of population living below the International poverty line (%)	2010	19.6	2016	14.8	9.3	4.8	0
End Hunger	Prevalence of undernourishment (%)	2010	17.2	2019	14.7	14	12	10
Good Health and Well Being	Maternal Mortality Ratio (per 100,000)	2010	216	2019	165	105	85	70
Inclusive and Equitable Education	Participation rate in organized learning (%)	2015	39	2019	77.5	80	90	100
Gender Equality	Proportion of seats held by women in local governments (%)	2016	23	2018	25.2	25	27	33
Clean Water and Sanitation	Proportion of population using safely managed drinking water services (%)			2019	47.9		100	100
Affordable and Clean Energy	Proportion of population with access to electricity (%)	2010	55.2	2019	92.2	96	100	100
Sustainable Growth and Decent Work	Annual growth rate of real GDP per capita (%)	2010	4.1	2018–19	6.91	6.7	7	7.5
Industry, Innovation, and Infrastructure	Manufacturing employment as a percentage of total employment (%)	2010	12.4	2016–17	14.4	20	22	25
Reduce Inequality	Growth rates of household expenditure among the bottom 40 percent (%)	2016	3.1	2018	7.7	8	9	10
Cities and Communities	Proportion of urban population living in slums (%)			2014	55.1	40	30	20
Responsible Consumption and Production	Amount of fossil-fuel subsidies per unit of GDP (production and consumption, %)	2014–15	0.04	2018–19	0.6		0.02	0.01
Climate Action	Number of deaths, missing persons and directly affected persons attributed to disasters (per 100,000)	2015	12,881	2019	4,318	6,500	3,500	1,500
Life Below Water	Coverage of protected areas in relation to marine areas (%)	2015	2.05	2020	5.27	10	10	10
Life on Land	Forest area as a proportion of total land area (%)	2015	14.1	2018	14.5	15	18	20
Peace, Justice, and Strong Institutions	Unsentenced detainees as a percentage of overall prison population (%)	2016	76.5	2018	83.6	70	50	40
Partnerships for the Goals	Fixed internet broadband subscriptions (%)	2015	2.41	2019	4.8	8	15	20

Sources: SDG tracker, Sustainable Development Goals Bangladesh Progress Report 2020, Bangladesh Planning Commission.

Annex I. Response to Past Fund Policy Advice

Since the last Article IV consultation in 2019, several recommendations have been implemented, but key challenges remain. The COVID-19 pandemic has forced the authorities to focus on dealing with the crisis, slowing the progress on longer-term reforms. The authorities continue to closely engage with the Fund through the Article IV consultations, periodic staff visits, capacity development, and the Resident Representative office.

FUND ADVICE	AUTHORITIES’ RESPONSE
BB should monitor inflation developments closely and ready to adjust its stance as needed.	In response to the COVID-19 pandemic, BB appropriately eased monetary policy, increased liquidity in the banking system, and relaxed regulatory measures to address the economic fallout from the pandemic. The cash reserve ratio for domestic banks, the bank rate, the repo rate, and the reverse repo rate were decreased while the advance to deposit ratio was increased. BB also increased liquidity including through unsterilized FX interventions, leading to historically low interest rates on government securities. Lower demand from the COVID-19 shock has kept inflation close to the authorities’ target during FY21 despite monetary easing. With conditions normalizing BB has started mopping up liquidity including through sale of FX to meet higher demand.
Gradually increase exchange rate flexibility.	BB has intervened in the foreign exchange market to avoid excessive exchange rate volatility. Appreciation pressures in FY21 were fully countered by BB’s purchase of US$ in FX markets. The currency has been relatively stable against the US$. The REER after a prolonged phase of appreciation has started depreciating over the second half of FY21.
Address banking sector vulnerabilities by strengthening banking regulation and supervision, SOCB reforms, tighter criteria for loan rescheduling / restructuring, stronger corporate governance, and enhance legal systems to accelerate loan recovery.	In response to the COVID-19 pandemic, a loan moratorium and reclassification freeze were introduced for the period of March to September 2020, which was extended to December 2020. The authorities have provided more time for loans that benefitted from the moratorium to be repaid, and extended the reclassification freeze accordingly. They instructed banks not to classify loans in 2021 where 25 percent of the outstanding amounts were paid. They have proposed the Bangladesh Asset Management Corporation draft law to set up a public corporation to handle distressed loans. The authorities have passed amendments to the Bank Company Act 2021, Financial Institutions Act 1993 (now the Finance Company Act (FCA) 2021) and are in the process of amending Money Loan Court Act 2020, Negotiable Instrument Act 2020, and the Bankruptcy Act 2020.
Keep public debt broadly stable.	To create room for COVID-19 stimulus, the authorities curtailed non-priority current spending, suspended low-priority capital projects, and moderately increased their deficit target. The risk of debt distress continues to be low. The authorities have recently concluded the MTDS with the intent of updating the MTDS to reflect the latest updates, including from COVID-19.
Increase tax revenues, including through the implementation of the VAT reform.	The authorities implemented the VAT reform in FY20, though it came with the introduction of multiple rates. The government also announced measures to improve tax administration and tax compliance, including via digitalization and making changes in the VAT registration form and VAT online software to give nonresident foreign companies (such as Google, Facebook, and YouTube) direct access to the system. Contracting out the installation and data collection of electronic fiscal devices to private vendors is being discussed.
Create fiscal space for necessary adaptation and mitigation of climate risk.	The authorities have started allocating budgetary support for adaptation and updated the Nationally Determined Contributions.
Develop the capital market, including through reform in the NSCs scheme.	Effective FY20, the issuance of NSCs was digitalized and linked to the purchasers’ tax identification number to enforce the existing cap on their issuance. The tax on interest income was also raised from 5 to 10 percent. In September 2021, the authorities implemented a cut on the interest rate of NSCs, increasing with the amount purchased.
Enhance governance and limit vulnerability to corruption.	The authorities have set objectives to revamp the ACC and enforce a zero-tolerance policy for corruption as part of the 8th Five-Year plan. The authorities have published the National Strategy for Preventing Money Laundering and Combating Financial Terrorism. Bangladesh is technically compliant with all 40 FATF recommendations of which 5 are partially compliant. More work is needed to strengthen the asset declaration regime.
Improve the business environment to boost private investment and promote export diversification.	The authorities have accelerated the process of setting up Special Economic Zones (SEZs) under both public and private sector initiatives, and as per the 8^th FYP plans to hand over SEZs to investors from specific countries. The authorities have made amendments to several laws and acts to strengthen the banking sector.

FUND ADVICE	AUTHORITIES’ RESPONSE
BB should monitor inflation developments closely and ready to adjust its stance as needed.	In response to the COVID-19 pandemic, BB appropriately eased monetary policy, increased liquidity in the banking system, and relaxed regulatory measures to address the economic fallout from the pandemic. The cash reserve ratio for domestic banks, the bank rate, the repo rate, and the reverse repo rate were decreased while the advance to deposit ratio was increased. BB also increased liquidity including through unsterilized FX interventions, leading to historically low interest rates on government securities. Lower demand from the COVID-19 shock has kept inflation close to the authorities’ target during FY21 despite monetary easing. With conditions normalizing BB has started mopping up liquidity including through sale of FX to meet higher demand.
Gradually increase exchange rate flexibility.	BB has intervened in the foreign exchange market to avoid excessive exchange rate volatility. Appreciation pressures in FY21 were fully countered by BB’s purchase of US$ in FX markets. The currency has been relatively stable against the US$. The REER after a prolonged phase of appreciation has started depreciating over the second half of FY21.
Address banking sector vulnerabilities by strengthening banking regulation and supervision, SOCB reforms, tighter criteria for loan rescheduling / restructuring, stronger corporate governance, and enhance legal systems to accelerate loan recovery.	In response to the COVID-19 pandemic, a loan moratorium and reclassification freeze were introduced for the period of March to September 2020, which was extended to December 2020. The authorities have provided more time for loans that benefitted from the moratorium to be repaid, and extended the reclassification freeze accordingly. They instructed banks not to classify loans in 2021 where 25 percent of the outstanding amounts were paid. They have proposed the Bangladesh Asset Management Corporation draft law to set up a public corporation to handle distressed loans. The authorities have passed amendments to the Bank Company Act 2021, Financial Institutions Act 1993 (now the Finance Company Act (FCA) 2021) and are in the process of amending Money Loan Court Act 2020, Negotiable Instrument Act 2020, and the Bankruptcy Act 2020.
Keep public debt broadly stable.	To create room for COVID-19 stimulus, the authorities curtailed non-priority current spending, suspended low-priority capital projects, and moderately increased their deficit target. The risk of debt distress continues to be low. The authorities have recently concluded the MTDS with the intent of updating the MTDS to reflect the latest updates, including from COVID-19.
Increase tax revenues, including through the implementation of the VAT reform.	The authorities implemented the VAT reform in FY20, though it came with the introduction of multiple rates. The government also announced measures to improve tax administration and tax compliance, including via digitalization and making changes in the VAT registration form and VAT online software to give nonresident foreign companies (such as Google, Facebook, and YouTube) direct access to the system. Contracting out the installation and data collection of electronic fiscal devices to private vendors is being discussed.
Create fiscal space for necessary adaptation and mitigation of climate risk.	The authorities have started allocating budgetary support for adaptation and updated the Nationally Determined Contributions.
Develop the capital market, including through reform in the NSCs scheme.	Effective FY20, the issuance of NSCs was digitalized and linked to the purchasers’ tax identification number to enforce the existing cap on their issuance. The tax on interest income was also raised from 5 to 10 percent. In September 2021, the authorities implemented a cut on the interest rate of NSCs, increasing with the amount purchased.
Enhance governance and limit vulnerability to corruption.	The authorities have set objectives to revamp the ACC and enforce a zero-tolerance policy for corruption as part of the 8th Five-Year plan. The authorities have published the National Strategy for Preventing Money Laundering and Combating Financial Terrorism. Bangladesh is technically compliant with all 40 FATF recommendations of which 5 are partially compliant. More work is needed to strengthen the asset declaration regime.
Improve the business environment to boost private investment and promote export diversification.	The authorities have accelerated the process of setting up Special Economic Zones (SEZs) under both public and private sector initiatives, and as per the 8^th FYP plans to hand over SEZs to investors from specific countries. The authorities have made amendments to several laws and acts to strengthen the banking sector.

Annex II. COVID-19-Related Measures

Source: Bangladesh authorities and staff calculation.

Category				Name of the package	Amount allocated (Tk. billion)	Execution status (as of Sep 2021)
Financed by budget budget	Social spending	Job retention /creation	1	Special Fund for salary support to ex port-oriented industries	50	100%
			17	Employment creation program through state-owned financial institutions	32	70%
			21	Revitalizing the rural economy and job creation in rural area	15	65%
			27	Employment creation through three State-owned financial institutions 2nd phase (PKSF-Tk.500 Crore. Karmasangsthan Bank-Tk.500 Crore and Palli Sanchay Bank-Tk.500 Crore	15	50%
		Food security	8	Free distribution of rice and wheat to the poor people	25	57%
			9	Selling rice at Tk. 10/kg under the OMS among low-income people	7.7	100%
			25	Special OMS at the city area (Rice: 20,000 MT and Flour: 14,000 MT)	1.5	100%
			26	Fund for Deputy Commissioner to provide food support to vulnerable people reached through 333 Call Center (Govt. Information and Service)	1	100%
		Cash transfer	10	Cash transfer for the targeted poor people (Tk. 2,500 per person for 3.5 million, plus 486 thousand fisheries and livestock farmers)	13.26	100%
			23	Second round cash assistance to 3.5 million poor people of Tk. 2,500 per person plus 100,000 Boro farmers affected by cyclone	9.3	83%
			24	Cash Transfer to the targeted poor people (Tk. 2,500 per person with total beneficiary 1.7 million daily labourer, transport worker, small entreprenuers, marine transport workers and construction workers)	4.5	96%
			11	Expansion of cash allowance programs to 112 upazillas	8.15	74%
			22	Expansion of cash allowance programs to another 150 upazillas	12	Process on-going
			20	Social safety net program for the workers who lost their job in the RMG, leather goods and footwear industries	15	0%
		Affordable home	12	Construction of home for homeless people	21.3	121%
	Support to agriculture		13	Support for farm mechanization	32.2	16%
	Support to agriculture		14	Subsidy for agriculture	95	83%
	Others		6	Special honorarium to doctors, nurses, and medical workers	1.38	88%
			7	Health and life insurance provided to doctors, health workers and other relevant government employees in case of coronavirus infection or death	7.5	10%
			18	Subsidy for commercial banks’ suspended interest during April-May 2020	20	70%
Financed by financial system	Support to export-oriented industry & others		2	Working capital loans for the affected industries and service sector	730	48%
			4	Expansion of facility provided through Export Development Fund (EDF) by Bangladesh Bank	170	100%
			5	Pre-Shipment Credit Refinance Scheme	50	8%
	Support to SMEs		3	Working capital loans for the SMEs, including the cottage industries	400	42%
	Support to SMEs		19	Credit risk sharing scheme for the SME sector	20	1%
	Support to low-income people		16	Refinance scheme for low income professionals, farmers, and small traders	30	61%
	Support to tourism		28	Working Capital Credit Facility at 4% interest to pay wages to the employees of hotel, motel and theme parks under Tourism Sector	10	Process on-going
	Support to agriculture		15	Agriculture Refinance Scheme	80	54%
Total in Tk. billion					1876.8	54.5%
Total in USS billion					22.1
as % of GDP					6.2%

Source: Bangladesh authorities and staff calculation.

Category				Name of the package	Amount allocated (Tk. billion)	Execution status (as of Sep 2021)
Financed by budget budget	Social spending	Job retention /creation	1	Special Fund for salary support to ex port-oriented industries	50	100%
			17	Employment creation program through state-owned financial institutions	32	70%
			21	Revitalizing the rural economy and job creation in rural area	15	65%
			27	Employment creation through three State-owned financial institutions 2nd phase (PKSF-Tk.500 Crore. Karmasangsthan Bank-Tk.500 Crore and Palli Sanchay Bank-Tk.500 Crore	15	50%
		Food security	8	Free distribution of rice and wheat to the poor people	25	57%
			9	Selling rice at Tk. 10/kg under the OMS among low-income people	7.7	100%
			25	Special OMS at the city area (Rice: 20,000 MT and Flour: 14,000 MT)	1.5	100%
			26	Fund for Deputy Commissioner to provide food support to vulnerable people reached through 333 Call Center (Govt. Information and Service)	1	100%
		Cash transfer	10	Cash transfer for the targeted poor people (Tk. 2,500 per person for 3.5 million, plus 486 thousand fisheries and livestock farmers)	13.26	100%
			23	Second round cash assistance to 3.5 million poor people of Tk. 2,500 per person plus 100,000 Boro farmers affected by cyclone	9.3	83%
			24	Cash Transfer to the targeted poor people (Tk. 2,500 per person with total beneficiary 1.7 million daily labourer, transport worker, small entreprenuers, marine transport workers and construction workers)	4.5	96%
			11	Expansion of cash allowance programs to 112 upazillas	8.15	74%
			22	Expansion of cash allowance programs to another 150 upazillas	12	Process on-going
			20	Social safety net program for the workers who lost their job in the RMG, leather goods and footwear industries	15	0%
		Affordable home	12	Construction of home for homeless people	21.3	121%
	Support to agriculture		13	Support for farm mechanization	32.2	16%
	Support to agriculture		14	Subsidy for agriculture	95	83%
	Others		6	Special honorarium to doctors, nurses, and medical workers	1.38	88%
			7	Health and life insurance provided to doctors, health workers and other relevant government employees in case of coronavirus infection or death	7.5	10%
			18	Subsidy for commercial banks’ suspended interest during April-May 2020	20	70%
Financed by financial system	Support to export-oriented industry & others		2	Working capital loans for the affected industries and service sector	730	48%
			4	Expansion of facility provided through Export Development Fund (EDF) by Bangladesh Bank	170	100%
			5	Pre-Shipment Credit Refinance Scheme	50	8%
	Support to SMEs		3	Working capital loans for the SMEs, including the cottage industries	400	42%
	Support to SMEs		19	Credit risk sharing scheme for the SME sector	20	1%
	Support to low-income people		16	Refinance scheme for low income professionals, farmers, and small traders	30	61%
	Support to tourism		28	Working Capital Credit Facility at 4% interest to pay wages to the employees of hotel, motel and theme parks under Tourism Sector	10	Process on-going
	Support to agriculture		15	Agriculture Refinance Scheme	80	54%
Total in Tk. billion					1876.8	54.5%
Total in USS billion					22.1
as % of GDP					6.2%

Source: Bangladesh authorities and staff calculation.

Annex III. External Sector Assessment

Overall Assessment: The external position in FY21 was broadly in line with the level implied by medium-term fundamentals and desirable policies. The current account (CA) deficit narrowed to 1.3 percent of GDP in FY21, in part due to a pandemic-related surge in remittances. These and other transitory effects are expected to lessen going forward, causing the CA deficit to widen modestly, moving close to its estimated norm.^¹

Potential Policy Responses: Greater exchange rate flexibility, together with safeguarding FX reserves, will assist resilience to external shocks.

Current Account

Background. CA dynamics are primarily driven by the trade balance and worker remittances. The CAD moderated slightly to 1.3 percent in FY21 from 1.7 (1.5) percent of GDP in FY20 (FY19), following a spike in remittances in FY 21 and despite a pick-up in the trade deficit led mostly by capital imports. The remittance surge throughout FY21 was largely attributed to a combination of (i) an increase in the use of formal channels, (ii) migrant workers sending their savings back ahead of repatriation, and (iii) a 2 percent incentive scheme introduced by the authorities in July 2019. These developments led to a narrowing in the CAD to 1.3 percent of GDP in FY21. Beginning FY22, as expected, remittances started to moderate as informal remittance inflows returned to pre-pandemic levels, but imports picked up significantly after COVID related delays and staff projects the CAD to widen to 2.4 percent of GDP. Overall, workers’ remittances had been falling as a share of GDP over the past decade, from 9.5 percent of GDP in FY10 to 5.4 percent of GDP in FY19, and this secular decline is expected to continue in the medium term. Imports are expected to grow to meet increasing investment, energy, and food needs, resulting in CA deficit stabilizing around 2 percent of GDP over the medium term.

Assessment. The revised EBA-lite CA model estimates a CA gap of 1.1 percent of GDP in FY21, with a positive policy gap due to a relative gap in fiscal policy (i.e., a lower deficit gap vis-à-vis the rest of the world) and lower-than-optimal spending on public health expenditure, among other factors. Taking into account uncertainty around the CA model’s point estimate and the IREER model results (which imply no gap), staff estimates a small CA gap in the range of 0–1¾ percent of GDP, with a mid-point consistent with an external position that is broadly in line with the level implied by medium-term fundamentals and desirable policies. ^², ^³

Current Account Balance and Reserve Coverage

(In percent of GDP)

Sources: Data from authorities and IMF staff estimates.

Bangladesh: Model Estimates for FY 21 (In percent of GDP)

			CA model
CA-Actual			-1.3
	Cyclical contributions (from model) (-)		0.1
		COVID-19 adjustor (+) ^1/	-0.6
	Additional temporary/statistical factors (+)		0.0
	Natural disasters and conflicts (-)		0.7
Adjusted CA			-2.7
CA Norm (from model) ^2/			-3.7
	Adjustments to the norm (+)		0.0
Adjusted CA Norm			-3.7
CA Gap			1.1
	o/w Relative policy gap		4.2
Elasticity			-0.12
REER Gap (in percent)			-8.9
Source: IMF staff estimates.
^2/ Additional cyclical adjustment to account for the temporary impact of the pandemic on on tourism (-0.05), and on remittances (-0.55).
^2/ Cyclically adjusted, including multilateral consistency adjustments.

Real Exchange Rate

Background. The Real Effective Exchange Rate has been mostly moving in tandem with the Euro/Taka rate since Q2 FY19 and through FY20 and FY21, with the US$/Taka rate largely stabilized. In FY20 (FY21), the Euro appreciated (depreciated) against the Taka on average by 2.3 (-7.4) percent (y/y) and the REER appreciated on average by 5.0 (0.1) percent (y/y). The change in the US$/Taka rate on the other hand was limited moving gradually towards a stable rate. The de-jure exchange rate regime is floating but de-facto Bangladesh was reclassified as stabilized since February 2020.^⁴

Exchange Rate Dynamics

(in y-o-y percent change)

Sources: INS and FRED

IREER: Actual, Fitted, and Norm

(Index in logs)

Source: IMF staff estimates.

Assessment. The REER gap (0.2 percent) suggested by the EBA-lite REER model is generated mostly due to the residual. As the model provides a poor fit for Bangladesh, more weight is given to the CA model results. Staff’s bottom-line estimated range for the CA gap (0–1¾ percent of GDP) implies an REER gap in the range of 0 to -15 percent, using an elasticity of -0.12.

Capital and Financial Accounts: Flows and Policy Measures

Background. The recorded inflows into the capital and financial accounts increased from 1.8 percent of GDP in FY19 to 3.7 percent of GDP in FY21. This increase reflected to a large extent the increase in short-term debt financing – both for loans and trade credit. However, the FDI inflows, on a net basis over the same period, fell from 0.9 to 0.4 percent of GDP, partly due to the COVID-19 shock.

Assessment. Capital account inflows are expected to revert to pre-crisis ratios as pandemic-related financing tapers off. FDI flows remain low compared to other LICs. Improving the investment climate, including continued liberalization of FX regulations as conditions allow, reducing the regulatory burden, and further legal reforms, such as in land registration and contract enforcement, will help attract FDI. Continued access to concessional financing would also help to meet the large climate adaptation needs.

Current and Financial Account Balance

(In percent of GDP)

Sources: Country Authorities

FX Intervention and Reserves Level

Background. Bangladesh Bank (BB) has been intervening in the spot market to stabilize the Taka/US$ exchange rate. To stabilize the appreciation pressures on the Taka from strong remittance and financial inflows, BB purchased net US$ 7.7 billion in the foreign exchange market and kept the Taka/US$ rate stable throughout FY21 even as the NEER and REER depreciated with shifts in major currencies in trading partner countries (particularly the Euro). Based on the BOP surplus of US$ 9.2 billion foreign exchange reserves reached a record high of US$ 46.4 billion (7.0 months of prospective import cover). Since then, the Bangladesh Bank has sold foreign currency in the open market to temper the depreciation (see Figure 4). The authorities should continue to gradually increase exchange rate flexibility, which would help buffer the economy against external shocks and preserve the level of reserves, while supporting the modernization of the monetary framework. Staff also recommend that their interventions have greater clarity around their purpose, amount, and timing, in line with Fund TA.^⁵

Assessment. The reserve coverage is deemed adequate based on a safe threshold of 5.7 months of import cover. The positive overall balance, except in FY18, has supported reserve accumulation over the past years. The reserve adequacy range varies between 4.4 and 5.7 months of imports depending on the assumed cost of reserves.^⁶,^⁷ With the exceptional surge in remittances, reserves peaked at 7.0 months of imports in FY21. Recent depreciation pressure on the Taka is driven by an increase in import demand. Over the medium-term reserves are expected to decline, given a tapering in remittance inflows, no substantial pick up in FDI, and limited exchange rate flexibility. The authorities recently introduced an option to lend foreign exchange reserves up to US$2 billion for crucial infrastructure projects through the newly created Bangladesh Infrastructure Development Fund (BIDF) on the conditions that (i) reserves are above 6 months of imports, (ii) project earnings are in FX, and (iii) a sovereign guarantee is provided. This raises governance and external sustainability concerns. Given the managed nature of exchange rate regime, Bangladesh may require higher reserve coverage.^⁸ The authorities should safeguard their FX reserves, including from other quasi-fiscal activities, to build external resilience and use other means of development financing.

Reserve Adequacy Assessment (Flexible ER)

(Months of current imports)

Source: IMF staff estimates.

Current Account

Sources: Data from authorities and IMF staff estimates.

Bangladesh: Model Estimates for FY 21 (In percent of GDP)

			CA model
CA-Actual			-1.3
	Cyclical contributions (from model) (-)		0.1
		COVID-19 adjustor (+) ^1/	-0.6
	Additional temporary/statistical factors (+)		0.0
	Natural disasters and conflicts (-)		0.7
Adjusted CA			-2.7
CA Norm (from model) ^2/			-3.7
	Adjustments to the norm (+)		0.0
Adjusted CA Norm			-3.7
CA Gap			1.1
	o/w Relative policy gap		4.2
Elasticity			-0.12
REER Gap (in percent)			-8.9
Source: IMF staff estimates.
^2/ Additional cyclical adjustment to account for the temporary impact of the pandemic on on tourism (-0.05), and on remittances (-0.55).
^2/ Cyclically adjusted, including multilateral consistency adjustments.

Real Exchange Rate

Sources: INS and FRED

IREER: Actual, Fitted, and Norm

(Index in logs)

Capital and Financial Accounts: Flows and Policy Measures

Sources: Country Authorities

FX Intervention and Reserves Level

Source: IMF staff estimates.

Annex IV. Risk Assessment Matrix^1/

^{^1/}The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“L” (low) is meant to indicate a probability below 10 percent, “M” (medium) a probability between 10 percent and 30 percent, and “H” (high) a probability of 30 percent or more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

Source of Risk	Relative Likelihood	Expected Impact	Main Impacts → Recommended Policy Actions
Global
Global resurgence of the Covid-19 pandemic. Local outbreaks in other countries lead to a global resurgence of the pandemic (possibly due to vaccine-resistant variants), which requires costly containment efforts and prompts persistent behavioral changes rendering many activities unviable.	M ST	M – H	Lower growth abroad could affect exports and remittances, with significant effects on domestic GDP growth and the current account balance. → Continue to monitor and track domestic transmissions of the virus to prevent local outbreak. Boost vaccination rate; provide additional stimulus, within the available policy space to mitigate adverse health and economic impact; and provide targeted measures to support vulnerable households and firms. Continue with structural reforms to promote green, inclusive, and resilient growth.
Rising commodity prices amid bouts of volatility. Commodity prices increase by more than expected against a weaker U.S. dollar, post-pandemic pent-up demand and supply disruptions. Uncertainty surrounding each of these factors leads to bouts of volatility, especially in oil prices.	M ST	M – H	Increase in current account deficit, higher fiscal burden. Current price controls, while recently increased, limit pass through to inflation. →providing targeted support to the poor; adopting a fuel pricing mechanism; preserving reserve adequacy; increasing exchange rate flexibility; and tightening monetary policy in case of second-round effects.
Cyber-attacks on critical infrastructure, institutions, and financial systems.	M MT	M	Systemic financial instability or widespread disruptions in socio-economic activities and remote work arrangements. → Enhance the security in the financial system and key infrastructure. Establish a comprehensive framework to facilitate coordinated responses by government and private sector in the event of a significant cyber-attack.
Domestic
Uncontrolled Covid-19 local outbreaks.	M ST	H	Limited healthcare capacity, coupled with low vaccination rate, could require costly containment measures, disrupting the recovery. → Boost vaccination rate; provide additional stimulus, within the available policy space; provide targeted measures to support vulnerable households and firms.
Failure to effectively address the problems in the banking system, including high non-performing loans (NPLs).	M ST, MT	M – H	High and increasing NPLs and low capital adequacy in SOCBs would hamper the banking sector’s ability to finance business investment, add to the fiscal burden, and undermine growth. → Address main causes of weak bank performance, including structural weaknesses in governance, regulation, supervision, and legal systems. Improve the ability of banks to deal with NPLs, including by establishing framework that can help NPL resolution. Reassess the role of state-owned commercial banks.
Slow progress in resolving the Rohingya crisis and weakened donor support.	M– H ST, MT	M – H	As the repatriation of the refugees takes time and donor support weakens, social and environmental costs, security concerns and fiscal pressures could intensify. → Increase fiscal space to address the difficult situation of the refugees, while maintaining fiscal sustainability. Continuous support of the international community will be essential.
Higher frequency and severity of natural disasters related to climate change.	M- H MT	M – H	Frequent flooding and storms could hit key infrastructure, affect agriculture and allied activities, and the livelihood of those affected. → Expand budgetary support for adaptation by investing in climate-resilient infrastructure and mobilize private green financing. Continue with the mitigation efforts to meet NDC targets.

Source of Risk	Relative Likelihood	Expected Impact	Main Impacts → Recommended Policy Actions
Global
Global resurgence of the Covid-19 pandemic. Local outbreaks in other countries lead to a global resurgence of the pandemic (possibly due to vaccine-resistant variants), which requires costly containment efforts and prompts persistent behavioral changes rendering many activities unviable.	M ST	M – H	Lower growth abroad could affect exports and remittances, with significant effects on domestic GDP growth and the current account balance. → Continue to monitor and track domestic transmissions of the virus to prevent local outbreak. Boost vaccination rate; provide additional stimulus, within the available policy space to mitigate adverse health and economic impact; and provide targeted measures to support vulnerable households and firms. Continue with structural reforms to promote green, inclusive, and resilient growth.
Rising commodity prices amid bouts of volatility. Commodity prices increase by more than expected against a weaker U.S. dollar, post-pandemic pent-up demand and supply disruptions. Uncertainty surrounding each of these factors leads to bouts of volatility, especially in oil prices.	M ST	M – H	Increase in current account deficit, higher fiscal burden. Current price controls, while recently increased, limit pass through to inflation. →providing targeted support to the poor; adopting a fuel pricing mechanism; preserving reserve adequacy; increasing exchange rate flexibility; and tightening monetary policy in case of second-round effects.
Cyber-attacks on critical infrastructure, institutions, and financial systems.	M MT	M	Systemic financial instability or widespread disruptions in socio-economic activities and remote work arrangements. → Enhance the security in the financial system and key infrastructure. Establish a comprehensive framework to facilitate coordinated responses by government and private sector in the event of a significant cyber-attack.
Domestic
Uncontrolled Covid-19 local outbreaks.	M ST	H	Limited healthcare capacity, coupled with low vaccination rate, could require costly containment measures, disrupting the recovery. → Boost vaccination rate; provide additional stimulus, within the available policy space; provide targeted measures to support vulnerable households and firms.
Failure to effectively address the problems in the banking system, including high non-performing loans (NPLs).	M ST, MT	M – H	High and increasing NPLs and low capital adequacy in SOCBs would hamper the banking sector’s ability to finance business investment, add to the fiscal burden, and undermine growth. → Address main causes of weak bank performance, including structural weaknesses in governance, regulation, supervision, and legal systems. Improve the ability of banks to deal with NPLs, including by establishing framework that can help NPL resolution. Reassess the role of state-owned commercial banks.
Slow progress in resolving the Rohingya crisis and weakened donor support.	M– H ST, MT	M – H	As the repatriation of the refugees takes time and donor support weakens, social and environmental costs, security concerns and fiscal pressures could intensify. → Increase fiscal space to address the difficult situation of the refugees, while maintaining fiscal sustainability. Continuous support of the international community will be essential.
Higher frequency and severity of natural disasters related to climate change.	M- H MT	M – H	Frequent flooding and storms could hit key infrastructure, affect agriculture and allied activities, and the livelihood of those affected. → Expand budgetary support for adaptation by investing in climate-resilient infrastructure and mobilize private green financing. Continue with the mitigation efforts to meet NDC targets.

Annex V. Supporting Inclusive Social Spending

Bangladesh’s Social safety net programs (SSNPs) and social spending on health and education have contributed to poverty reduction and improvement in social outcomes. However, a large part of the population still lives in extreme poverty or remains highly vulnerable to shocks such as the COVID-19. Expanding coverage, strengthening benefit adequacy, and improving efficiency of the social safety net programs will help build resilience against economic, health and environmental shocks. Mobilizing resources to sustainably finance higher health and education spending will be critical in facilitating inclusive growth moving forward.

1. Bangladesh has achieved significant progress in social outcomes despite public spending remaining low. The high growth performance over the past decade contributed to a remarkable improvement in socio-economic indicators, such as on poverty, health, education, and other dimensions of well-being. Poverty declined as exports-led growth generated demand for low-skilled jobs and large inflows of remittances facilitated greater risk-sharing. However, challenges persist as a large part of the population still lives in extreme poverty or remains highly vulnerable to covariate shocks such as the COVID-19. Government spending to address such covariate risks remains low, with overall current expenditure lagging that of peer countries. While the authorities have increased priority health and social spending during the pandemic, the low level of revenue is restraining public expenditure on other important developmental objectives.

2. More investment in human capital will be needed to help Bangladesh achieve its target to move to upper-middle income and beyond. Government spending on health, education and social protection are low and need to be bolstered. In particular:

Health financing is characterized by low government spending and high out-of-pocket expenditure. Total health spending is below the average of comparators both as a share of GDP and in US$ purchasing-power-parity (PPP) per capita terms. Despite notable improvements in several health indicators, considerable challenges in the health sector remain. Large out-of-pocket payments due to limited public health spending further exacerbate inequities. Life expectancy is comparable to more advanced countries. Nevertheless, infant mortality remains high, and the health sector capacity is limited, including because of a low number of nurses and midwives who play a central role in improving service coverage.
Public spending on education remains inadequately financed. While spending levels on primary and secondary education are comparable to the average in LIDCs, the spending gap is wider for tertiary education. Despite the lower spending relative to the average of comparator countries, Bangladesh maintains a comparable level of net enrollment in primary and secondary education. Increasing education spending as a share of GDP and a share of overall budget will help increase access to higher levels of education, especially at the tertiary level where the male-female gaps in enrollment and attainment remain.

3. Budget support for social protection increased in recent years and was scaled up during the pandemic. Total spending on SSNPs as a share of GDP increased from 2 percent to 2.5 percent during FY15–19. However, more than half of this increase is explained by the rise in the pension allocations for retired government employees and their families that increased from 0.6 percent of GDP to 0.9 percent of GDP over the same period. Excluding this mandatory civil servants’ pension program, the allocation on core social safety net programs increased by only 0.2 percent of GDP during the period FY15–19. The authorities scaled up social protection spending during the COVID-19 pandemic to mitigate the economic fallout for the most vulnerable. Spending on SSNPs as a share of GDP reached 2.9 percent and 3.2 percent in FY20 and FY21, respectively, and is budgeted at 3.2 percent in FY22. Existing programs that were expanded include cash allowance to widows and the old age people, food security and affordable home constructions. New programs were introduced and digital tools were used to support the urban poor and to protect jobs. Urban poor, mostly employed in the informal sector, were not only among the most vulnerable groups during the lockdowns, but also the most difficult to target. A new database of urban poor has been developed and several rounds of cash transfers totaling Tk 27 billion are being implemented, estimated to benefit around 9 million people. Wage support programs were offered to formal sector workers, including those working in the export-oriented industries. Government-to-Person (G2P) payment and mobile finance services (MFS) were widely used to ensure transparency and to reach beneficiaries without bank accounts.

4. The imbalance between expenditure allocations and age group shares suggests that there is scope to better align the lifecycle transfer programs with Bangladesh’s demographic composition. Bangladesh adopted a lifecycle approach to social protection with the launch of the National Social Security Strategy (NSSS) in 2015. The lifecycle approach aims at designing social programs to address both covariate risks and risks at each stage of life. Covariate risks— such as economic recessions, natural disasters, and epidemics—are risks that individuals can face across the different stages of life. Lifecycle related programs are split into four categories based on their target population group being pregnant women and children (0–4), the school age (5–17), the working-age (18–59), and the elderly (60+). Disaggregation of the FY21 social security budget allocation into lifecycle and covariate risks shows that covariate risks are allocated 36 percent while the highest lifecycle allocation is provided to old age people (31 percent) despite that their population share is the lowest. On the other hand, the combined allocation targeting the pregnancy, childhood and school age groups is only 10 percent, despite that these groups amount to at least 34 percent of the population.

5. While coverage of social assistance programs has increased over time, the level of total spending and benefit adequacy have remained low and urban areas underserved. When compared to EMEs, Bangladesh allocates a higher share of its social assistance budget to food subsidies and public works, while a lower share is distributed as unconditional cash transfers and fee waivers. Bangladesh has a higher social assistance coverage rate than the median of the low income and developing countries (LIDCs), despite having similar spending level and program composition. Based on pre-COVID-19 information, the level of social assistance spending is lower than the median of emerging market economies (EMEs) by about 0.5 percent of GDP, while it is at par at about 1 percent of GDP with the median LIDC. Coverage of the poorest quintile has increased significantly over time both in the rural and urban areas of Bangladesh, exceeding 50 percent of the rural households before the pandemic. However, only 4 out of 10 urban poor are receiving social assistance. Benefit incidence declined as coverage increased, particularly for the bottom quintile of urban households that receive only 10 percent of the total social assistance.

6. Social assistance programs will need to be strengthened in the near term to mitigate the impact of the pandemic on the most vulnerable. Pre-pandemic cash transfer programs had a satisfactory coverage rate for the bottom quintile with benefit incidence levels closer to the average of emerging economies. Preserving the gains in poverty reduction over the pre-pandemic period will require expanding the coverage to the new and urban poor not covered by existing programs. Importantly, strengthening the social safety net would require improving benefit adequacy and targeting as the total transfer amount received by beneficiaries as a share of their pre-transfer total income is low.

7. COVID-19 has underscored the urgency to further improve the social safety net, including via better and timely targeting of the assistance programs. While government actions have been timely and appropriate, several challenges to the social protection system were observed during the pandemic. The new urban poor were excluded from most of the existing programs at the time. Thus, although a database has been developed, efforts are needed to maintain the database or find better ways to identify those workers in case of future shocks. Although progress has been made in the past five years on harmonizing programs, there are still 119 social protection programs managed by 25 Ministries or Divisions. This fragmentation has likely led to high administrative costs and low efficiency of execution and monitoring. Most importantly, program coverage is still relatively low to fully realize the potential of the lifecycle approach. Moreover, targeting of social benefits can be improved as 11 percent of the transfers provided before the pandemic was received by the top quintile of the income distribution. Public service digitalization can help reduce benefit leakage to better target those most in need of support.

8. Significant policy effort is required to build an inclusive social safety net that will help end poverty. The 8th Five-Year Plan (8FYP) recognizes the need to implement administrative reforms, expand coverage with a special focus on young children and urban areas, increase generosity of social assistance programs, build a social insurance system, and complete the contributory pension system. Additional challenges are posed by the pandemic’s “new poor,” as considerable financing will be required to broaden the scope of social protection and at the same time strengthen the benefit adequacy of the offered programs. The following recommendations aim at enhancing Bangladeshi’s social safety net to promote more inclusive growth and to improve its disaster-responsiveness:

Mobilize revenue to expand and strengthen social protection. Bangladesh’s low tax revenue significantly constrains the authorities’ resource envelope to support the vulnerable and poor segments of the population both in normal times and during crises such the COVID-19 pandemic. Therefore, it is crucial to sustainably finance the expansion of the social safety net by pursuing revenue reforms that will streamline the tax system, rationalize tax expenditure, and modernize the revenue administration.
Improve public administration efficiency in targeting and delivering social protection, including by adopting GovTech solutions and developing a flexible poverty registry. Bangladesh will benefit from further advancing its government digitalization efforts to improve efficiency and flexibility in public service delivery. Digitalizing information on beneficiaries and facilitating secure digital transfers can lead to faster, more transparent, and lower-cost procedures in targeting beneficiaries and tracking changes in poverty patterns. Similarly, a well-designed poverty registry could enhance the shock-responsiveness of the social safety net design which is crucial for preventing climate and other shocks from having a lasting impact on the poor.
Increase social spending to improve benefit adequacy and to better align program allocations with demographic and regional needs of urban and rural areas. Mobilizing resources and improving efficiency can help generate the fiscal space to strengthen the currently weak benefit adequacy of the social protection system, particularly for the urban poor and certain lifecycle groups like pregnant women, mothers, and children.

References

Bangladesh Planning Commission, 2020, “8th Five Year Plan: Promoting Prosperity and Fostering Inclusiveness,” December 2020. http://www.plancomm.gov.bd
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Bangladesh Planning Commission, 2015. “National Social Security Strategy (NSSS) of Bangladesh,” July 2015. http://www.plancomm.gov.bd/nsss/
- Search Google Scholar
- Export Citation
Bangladesh Cabinet Division and General Economics Division of Planning Commission, 2020, “Urban Social Protection Strategy and Action Plan in Bangladesh,” draft. January 2020, Social Security Policy Support (SSPS) Program.
- Search Google Scholar
- Export Citation

Annex VI. Capacity Development Supporting Surveillance Priorities

Capacity development (CD) remains crucial to help Bangladesh transition into an upper-middle income economy – an aspiration for 2031. CD from the IMF, closely aligned with surveillance priorities, focuses on supporting the authorities’ efforts in building fiscal and monetary institutions; modernizing fiscal and monetary frameworks; and improving macroeconomic statistics. Given pandemic-related travel restrictions, CD delivery was limited in FY21. Virtual engagement has picked up recently. However, starting a new CD project virtually has been challenging. In FY21, Bangladesh was in the top ten IMF CD recipients amongst the lower-middle-income countries in Asia.

Background

1. The IMF CD is aimed at supporting the large development needs, as highlighted in Bangladesh’s 8^th Five Year Plan (FYP). Mobilizing revenues by modernizing tax administration, and managing fiscal risks are key fiscal priorities. For monetary and exchange rate policies, the focus remains on shifting to an interest rate framework, increasing exchange rate flexibility gradually, and maintaining adequate FX reserves. Strengthening banking regulation and supervision, improving corporate governance, reforming legal systems, and reforming and reassessing the role of state-owned commercial banks will be important financial sector reforms. In addition, increasing staff capacity with the aim to strengthening policy making remains important. CD has been aligned to these policy objectives of the authorities, which are also in line with the IMF’s surveillance priorities. CD is being delivered by regional advisors from IMF South Asia Regional Training and Technical Assistance Center (SARTTAC), and IMF HQ-based missions.

Monetary and Financial Sector

CD in this area is focused on two key surveillance priorities –modernization of the monetary policy framework and addressing financial sector vulnerabilities.

2. CD is supporting the Bangladesh Bank (BB) to prepare for the transition towards an interest-based monetary policy framework. To accompany this transition, CD on monetary policy framework and monetary operations are currently underway. The former, through development of a Forecasting and Policy Analysis System (FPAS) at the Bangladesh Bank, should allow an informed decision-making process on the appropriate level of the policy interest rate, and monetary policy stance more generally, given the prevailing macro-economic and financial conditions and outlook. The latter should ensure that the desired monetary policy stance is transmitted into the economy, by steering the short-term interbank market rate close to this policy rate.

3. The 2019 FSSR for Bangladesh provided a baseline diagnostic assessment upon which financial sector reform programs can be built and implemented. The 2019 FSSR evaluated the adequacy of institutional frameworks and capacity in the areas of financial policies that may have implications on financial stability and financial deepening. Based on these recommendations, the FSSR has developed a comprehensive TA Roadmap to address gaps that will guide CD to Bangladesh going forward. Discussions are ongoing to embark on this roadmap starting with stress testing, operationalizing a macroprudential policy framework and training for bank board members.

4. Strengthening the supervisory capacity of the BB to move towards effective risk-based supervision remains important. Several missions have focused on building of a more risk-based approach of the supervision of banks and addressing implementation difficulties will be important.

5. The IMF has reviewed and provided comments on the authorities’ amendments to the Bank Companies Act and Financial Institution Act. While progress has been made to align Bangladesh Bank’s (BB) autonomy and the bank resolution framework with best practices, based on IMF reviews, further improvements are needed in the Bank Companies Act and Financial Institution Act/Finance Company Act, focusing on the autonomy of BB and the resolution framework for weak banks. The IMF has reviewed these acts to provide comments in the context of aligning these to international best practice. Comments on the draft new guidelines on corporate governance of banks have also been provided.

Fiscal Sector

Mobilizing revenue to create fiscal space, improving the social safety net, and building climate resilience and competitiveness remain important. Reforms of the National Savings Certificates (NSC) to mitigate interest costs and greater reliance on tapping the government securities market are important for developing the medium-term debt strategy (MTDS).

6. Improving the Public Financial Management (PFM) systems is a key part of the overall fiscal governance reform agenda. The PFM Reform Strategy (2016–21) is supported by a PFM Reform Action Plan (2018–23). PFM related CD support through TA missions and customized training programs have thus far focused on (i) fiscal reporting (ii) review of chart of accounts-budget and accounting classification (iii) strengthening cash management practices (iv) designing a commitment management and control system and fiscal risk management. Future TA will focus on improving the content and presentation of the budget documents. A mission to strengthen Debt Management Practices (focusing on NSCs) is also planned.

7. CD projects focused on enhancing revenue collection, with implementation of a few targeted priority reforms, are being delivered. CD thus far has focused on (i) modernizing revenue administration (ii) improving the use of electronic data and building capacity for revenue analysis and (iii) managing for improved revenue collections. Future CD plans will include compliance risk management, audit & investigation techniques, and specific compliance risks.

8. CD for identifying fiscal risks from SOEs, in the context of debt and contingent liabilities, is being discussed. A presentation and discussion, in the context identifying fiscal risks from SOEs, was delivered to the authorities focusing on the approaches to the management of fiscal risks from SOEs. The engagement on this topic is expected to continue once the SOE database and related data is made available for analysis.

9. CD on developing a medium-term debt strategy – important to prepare Bangladesh’s graduation from LDC – is being provided. A joint IMF and World Bank mission assisted and advised the authorities on debt market development It underscored that the pricing and use of non-marketable savings bonds have impacted the growth of the domestic debt market in Bangladesh and resulted in market distortions. A joint IMF and World Bank mission also delivered a virtual TA to support the formulation of the MTDS in Bangladesh. The authorities are committed to updating the MTDS by the end of 2021. The mission delivered detailed presentations on the MTDS framework and the use of the analytical tool. It also provided hands-on training on the computation and interpretation of indicators to assess cost-risk trade-offs. The authorities had earlier formulated a MTDS which ran during FY14 to FY16 but not updated subsequently mainly due to capacity constraints and fragmented debt management responsibilities. The authorities are keen to reinvigorate the development of the domestic debt market and reduce its fragmentation by de-emphasizing its reliance on NSCs. However, this would require TA in several areas including updating and implementing the MTDS, strengthening the government’s cash management capacity, formulating the issuance plan, reforming the PD system, repo market, and developing the secondary market.

AML/CFT

10. Progress has been made in strengthening the AML/CFT but overall effectiveness of the framework is still lacking. In November 2019 the authorities published the National Strategy for Preventing Money Laundering and Combating Financial Terrorism. Going forward, the authorities should step-up efforts to fully implement the strategy and enhancing the effectiveness of the framework including by improving entity transparency and the availability of beneficial ownership information, and strengthening AML/CFT risk based supervision of financial institutions. Compliance of financial institutions in implementing preventive measures including in relation to domestic politically exposed persons should also be a matter of priority.

Data

The pandemic has highlighted the importance of high quality and better coverage of data and timely dissemination of statistics. This data is imperative as input for well-designed macro frameworks and forecasting tools used by the authorities for medium-term planning.

11. Progress in improving macroeconomic statistics continues, and improving the quality and timely dissemination of data remain important. Several ongoing CD projects are aimed to help the authorities compile key macroeconomic and financial statistics.

Monetary and financial. TA in compiling monetary statistics for other financial corporations, covering insurance corporations, all other financial intermediaries, and several financial auxiliaries was provided to expand the institutional coverage of MFS for Bangladesh, thus improving its usefulness for financial sector surveillance.
Prices. Good progress has been made in updating the Consumer Price Index (CPI) to reflect updated weights and items, and improving compilation methodologies continues. The first TA mission to assist BB to compile a residential property price index, under the auspices of the Data for Decisions Fund, was also delivered. TA in CPI and Producer Price Index (PPI) is expected to continue in this fiscal year (FY22).
Government Finance. The recent series of GFS missions primarily focused on assisting the authorities in finalizing GFS for fiscal years 2016/17 – 2018/19, and to resume dissemination of those statistics to the IMF.
National Accounts. The national accounts program only contains annual GDP at current and constant prices, using both the production and expenditure approach, but the BBS’ longer-term plan is to develop a QGDP program. TA assisting the authorities with developing/updating measures of QGDP was recently delivered.

Training

12. The IMF is delivering training for staff via customized courses, workshops, and training in methodologies used in surveillance. In addition to reviewing a PFM related course for the authorities, in 2019, IMF SARTTAC conducted a one-week training program for the course participants on key PFM issues and practices and particularly the relationship between macroeconomic forecasting and fiscal policy. During 2019 and 2020, SARTTAC hosted three cohorts, each comprising 25 mid-level officers, for a week-long course comprising Macroeconomic and Financial Implications of Fiscal Policy, Revenue and Expenditure Forecasting, Strategic Budgeting and Medium-term Expenditure Framework, Fiscal Risks Management, and Accounting, Reporting and Fiscal Transparency. Regional Training in Risk Based Audit Techniques, Collections and Arrears Management, and Taxpayer Registration has also been provided. Training in Forecasting and Policy Analysis Systems models is being considered for BB officials.

13. The authorities’ upgraded macroeconomic framework now captures better linkages between fiscal policy and growth. The authorities’ upgraded macroeconomic framework was developed as a part of the Financial Programming 2.0 project. This training set out to strengthen the macroeconomic analysis capacity of the authorities and enhance their medium-term framework to better capture economic interactions and feedback effects. It is proposed that this project now enters a second phase. The goal for this phase would be to (i) embed the forecasts in the institutional processes for budget preparation and economic analysis, and (ii) further refine the macroeconomic framework. This work would then aim at producing regular forecasts and analysis and communicate them through reports and briefings.

Annex VII. COVID-19 and the Financial Sector Policy Response

Financial Policy Measures Taken to Buffer the Impact of the COVD-19 Shock

1. The bulk of the authorities’ stimulus package was directed through the banking sector. The initial policy response from the Bangladesh Bank (BB) consisted of a mix of subsidized lending schemes, refinancing schemes, a loan moratorium and reclassification freeze (Table 1). As the COVID-19 pandemic continued to unfold, the loan moratorium was extended from end-September 2020 to December 2020. Additional measures aimed at targeted lending to cottage, micro, small and medium enterprises (CMSMEs), and the agricultural and rural sector were also introduced. Overall, the pandemic response included a loan moratorium, macroprudential policies, refinancing facilities, a credit guarantee, and guidance on dividend distribution.

Evaluating the COVID-19 Measures and Assessing their Impact on the Banking Sector

2. The loan moratorium was sufficiently broad and fast to help buffer the initial shock from COVID-19 on the economy. All term loans were eligible for the loan moratorium. The breadth of the policy was appropriate given the need to react quickly to the shock. Concurrently, the BB implemented a reclassification freeze, whereby loans benefitting from the moratorium could not be downgraded during the time of the moratorium. Nevertheless, borrowers whose loans were not current and still chose to continue servicing their loans could benefit from an improvement in classification. Several prudential policies were relaxed to direct lending into alternative investments, CMSMEs, and consumer loans.

3. Changes to prudential policies make assessing asset quality in banks more difficult. Classification and prudential standards should not have been lowered, as done with the reclassification freeze and the forbearance measure introduced in 2021 that allows loans to remain unclassified as long as 25 percent of the amount due by December 2021 is paid. Loans benefitting from the moratorium should be monitored closely for viability. Ad-hoc reporting of the stocks and flows of the loans impacted by COVID-19 can enable better monitoring of the financial health of banks and the stability of the banking system. The forbearance measures introduced distort the view on asset quality in the banking system and potentially understate provisioning requirements. Moreover, relaxing prudential measures to attract lending to specific sectors and lowering standards to boost credit disbursement could have been avoided.

4. Pickup in lending was tepid despite the availability of subsidized loans and refinancing schemes. Several refinancing schemes were introduced to make liquidity available in the banking system, and in combination with monetary easing, this ensured banks had ample liquidity to extend credit to the real economy. Subsidized working capital loans, worth Tk 300 billion, to export oriented and service sector industries were introduced in the first phase from April 2020 to June 2021. Take up in this phase was around 82 percent. An additional Tk 330 billion was introduced in the second phase in FY22. Take up to end October was around 15 percent. Subsidized loans to CMSMEs totaling Tk 200 billion were introduced in April 2020. Take up as of end-June 2021 was around 77 percent. This is a revolving scheme with the second phase starting in FY22. To improve take-up in CMSMEs, the authorities introduced a credit guarantee scheme. The credit guarantee was partial ensuring risk sharing between banks and the government, and incentivizing banks to find creditworthy borrowers.

5. A policy introduced early on, later reversed, restricting dividend distribution could have helped preserve the capital of banks to absorb losses. BB initially introduced a restriction preventing the distribution of 2019 dividends before September 30, 2020 (the expiration date of the original loan moratorium before it was extended to end December 2020). This instruction was appropriate given uncertainties in the financial positions of banks. However, this instruction was later reversed and a more liberal instruction on dividend distributions, for banks and financial institutions, was introduced in February 2021.

Exiting from COVID-19 Measures: Best Practices

6. As the economy recovers from the COVID-19 shock, regulatory and supervisory policies must be calibrated to ensure financial stability and credit discipline. Below are some principles reflecting best practice with reference to the Bangladesh context:^¹

7. Moratoria and government guarantees: The authorities allowed the loan moratorium to expire on December 20, 2020 after extending it only once. The forbearance measure introduced in 2021 is broad (all current loans are eligible) and prolongs the recognition of NPLs. Broad measures should be replaced with (i) targeted and time bound support and (ii) risks should be shared between the fiscal agency and banks. Going forward, eligibility criteria for further support, if needed, should become stricter.

8. Asset quality and provisioning: A repayment schedule for loans that benefitted from the moratorium was announced, allowing repayment on a quarterly basis for up to two years, as determined by banks based on their assessment of the creditor and the loans. This gradual repayment schedule will help support firm recovery. It remains crucial that supervisors require banks to collect information and monitor these loans for quick identification of problem loans. More generally, banks should also be required to disclose criteria used to determine loan classification and share assumptions used to assess the adequacy of provisions. Banks should be prepared to deal with a higher than usual level of NPLs. Banks with large NPLs should be required to develop internal capacity to manage NPLs and should develop plans to reduce their levels. The legal framework for insolvency and debt enforcement should be strengthened to increase loan recovery.

9. Profitability and capital distributions: Banks with low capital should submit a credible capital restoration plan. The plan should be feasible, gradual, and planned for execution in a timely manner. Dividend distributions should be restricted given the distortion to bank profitability from the moratorium and uncertainty around the viability of borrowers.

^{Table 1.}

Bangladesh: Selected COVID-19 Related Financial Sector Policies

Source: Bangladesh Bank

Annex VIII. An Illustrative Adverse Scenario^¹

Despite the COVID-19 shock, the Bangladeshi economy maintains a positive medium-term outlook. However, the outlook is subject to major uncertainties with risks tilted to the downside due to the uncertain nature of the pandemic. This Annex presents an adverse scenario that assumes a global resurgence of the pandemic coupled with supply disruptions that lead to increased commodity prices. Under such a shock, Bangladesh’s capacity to repay the Fund would deteriorate but remain sound. External and domestic debt indicators would be below their respective thresholds under the baseline and stress test scenarios.

1. The downside scenario assumes a sharp global and domestic resurgence of the pandemic. Should the pandemic intensify beyond what is assumed under the baseline scenario, weaker growth in trading partners’ economies would result in lower exports and remittance inflows for Bangladesh. The adverse scenario assumes that a new wave of global COVID-19 outbreak takes place in 2022, disrupting world and domestic economic activity in the second half of FY22 and first half of FY23. Furthermore, global supply chain disruptions lead to higher commodity and energy prices making their import costlier.

2. External and fiscal balances are expected to deteriorate under such an adverse scenario (Table).

Growth: Efforts to contain the spread of the virus domestically would dampen economic activity lowering exports, private consumption, and investment. Growth would decline by 3.5 and 2.5 percentage points in FY22 and FY23, respectively, and inflation would pick up as commodity prices soar.
External: Exports and remittances would decline owing to weaker-than-expected growth of trading partners. Higher commodity prices would increase the import bill, widen the current account deficit, and put pressure on reserves. However, export growth would as of FY24 improve the current account after commodity prices normalize and domestic demand for imports becomes more nuanced relative to the baseline.
Fiscal: Fiscal balances would be impaired both from shortfalls in revenues and from scaling up health and social spending to protect livelihoods. Additionally, it is assumed that the rising commodity prices would imply higher energy and food subsidies, while SOEs would need to be supported with cash loans and subsidies to cover their losses.
Financial activity: The growth slowdown combined with lower consumer and business confidence could reduce liquidity in the banking system, raise NPLs and reduce capital adequacy ratios. This would increase banks’ reluctance to provide credit and ultimately contribute to delaying the recovery

3. Bangladesh’s capacity to repay the Fund would deteriorate but would remain adequate under the adverse scenario. External and public debt would still be assessed at low risk of debt distress including under a stress test of a one-time 10 percent of GDP shock occurring due to contingent liabilities related to the financial sector. External and domestic debt indicators would be below their respective thresholds. Key indicators such as Fund debt service as a percent of exports and gross reserves would rise moderately under the adverse scenario relative to the baseline projections. Despite this mild worsening of key indicators, Bangladesh’s capacity to repay the IMF would be preserved.

^{Table 1.}

Bangladesh: Adverse Scenario, FY2022–26 ^1/

Sources: IMF staff estimates and projections.

^{^1/}Fiscal year begins July 1.

The United Nations Committee for Development Policy (CDP) recommended on February 26, 2021 the graduation of Bangladesh from LDC status with an extended five-year preparatory period to ensure recovery from COVID-19. Bangladesh met the eligibility criteria in terms of per capita income, human assets, and economic and environmental vulnerability.

See 2021 Bangladesh: Selected Issues paper “Bangladesh in Transition.”

BB’s intermediate target is broad money (M2), and the operational target is reserve money. Policy rates are used to signal the monetary stance.

Fiscal year in Bangladesh begins in July and ends in June.

In November 2021, the Bangladesh Bureau of Statistics (BBS) released a rebased series of national accounts (base year 2015/16). The rebasing has led to an increase in GDP levels and a slight decline in GDP growth rates, partly reflecting wider coverage of economic activities and methodological changes. For instance, FY20 GDP at current prices is 15.7 percent higher, while real GDP growth rate is 0.06 percentage point lower, compared to the existing data (base year 2005/06). BBS is finalizing the underlying balanced supply and use tables (SUTs) and working on producing back-casted historical GDP series. In the absence of full data, the staff report continues to use the 2005/06 base year GDP series.

The exceptional spike in remittances through banks in FY21 was driven largely by a disruption to informal channels of remitting with the temporary halt in flights to Bangladesh, as well as a 2 percent incentive to divert these flows to banks. Effective January 1, 2022 the incentive was increased to 2.5 percent.

World Bank. 2021. Shifting Gears: Digitization and Services-Led Development. South Asia Economic Focus, Fall 2021. Washington, DC: World Bank.

World Bank. 2021. COVID-19 Monitoring Survey in Poor and Slum Areas of Dhaka and Chittagong: Bangladesh Labor Market Situation as of Round 3. Washington, DC: World Bank.

See 2021 Bangladesh: Selected Issues paper “The Medium-Term Effect of COVID-19 in Bangladesh.”

The NEER depreciated at an average rate of 3.8 percent between August 2020-July 2021.

The de-jure exchange rate regime is floating but the de-facto exchange rate regime was reclassified as stabilized from crawl-like since February 2020.

See 2021 Bangladesh: Selected Issues paper “Digitalization and Public Finance Efficiency.”

Effective April 1, 2020, BB introduced a cap on lending rates at 9 percent, except for credit cards. The motivation was to increase access to affordable financing and boost investment.

See 2021 Bangladesh: Selected Issues paper “Modernizing the Monetary Policy Framework in Bangladesh – Model-Based Insights.”

The NPL ratio at end-December 2018 was 10.3 percent.

The Development Module Financial Sector Assessment Program (DM FSAP), conducted by the World Bank in April 2019, also suggests that reported NPL ratios do not accurately represent problem assets which include those with stay orders, special mention loans and loans that have been granted non-objection certificates by Bangladesh Bank.

Applications were accepted until Mid – February 2020.

https://cptu.gov.bd/contract-award/contract-award-list.html

Please see “Export Diversification in Bangladesh”, Selected Issues, 2019. https://www.imf.org/en/Publications/CR/Issues/2019/09/17/Bangladesh-Selected-Issues-48683

See Bangladesh: Selected Issues paper “Preparing for Automation: The Case of Bangladesh.”

As per the estimates of the Bangladesh authorities the cost is estimated at about US$27 billion (FY11–30), which translates to about US$1.4 billion per year for mitigation. Costs for the effective implementation of Nationally Determined Contribution (NDC) for adaptation (over FY15–30) have been estimated at about US$ 42 billion, which translates to about US$ 2.8 billion annually.

See 2021 Bangladesh: Selected Issues paper “Addressing Climate Change in Bangladesh – A Smart Carbon Pricing Strategy: A Carbon User Fee to Mobilize Climate Finance.”

This section reports on discussions under the Post Financing Assessment (PFA) policy. For a description of the PFA policy, see Policy Paper No. 2021/026 (https://www.imf.org/en/Publications/Policy-Papers/Issues/2021/05/19/Post-Program-Monitoring-During-The-Pandemic-460350).

Fiscal year ends in June.

The external sustainability model is not as relevant for Bangladesh as reserves are adequate and the risk of external debt distress is low.

The COVID-19 adjustment accounts for the temporary remittance surge in FY21 relative to past projection in September 2019.

The Bangladesh Bank (BB) intervenes in the foreign exchange market to contain undue fluctuations in the exchange rate. Apart from the Annual Report, the BB publishes information on its intervention on quarterly and semiannually basis, respectively. Publication lags are: 2–3 months for Bangladesh Bank Quarterly, 3–4 weeks for Monetary Policy Statements, and 5–7 months for Annual Report. From February 2020, the exchange rate has stabilized within a 2 percent band against the US dollar. Accordingly, the de facto exchange rate arrangement was reclassified to stabilized from crawl-like, effective February 3, 2020.

IMF. 2018. Monetary Policy Modernization at Bangladesh Bank Challenges, Next Steps and SARTTAC Support/SARTTAC Technical Assistance report, November, page 34.

Bangladesh is assessed to be “credit constrained” for this exercise given that it does not regularly borrow from international capital markets—defined as at least one issuance of bonds per year in the last five years—and is not rated to be “investment grade.”

Suggested coverage of 4.4 (5.7) months of imports is attained using a cost of reserve accumulation equal to the marginal product of capital in LICs (ECF external funding cost), as estimated in https://www.imf.org/external/np/pp/eng/2011/021411c.pdf.

The template for assessing reserve adequacy in credit constrained economies with fixed exchange rate suggests a higher value of 12.4 months of import cover.

Please see “Unwinding COVID-19 Policy Interventions for Banking Systems,” Money and Capital Markets Department, IMF, March 10, 2021.

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Bangladesh: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh

Author:

International Monetary Fund. Asia and Pacific Dept

Volume/Issue:: Volume 2022: Issue 071

Publisher:: International Monetary Fund

ISBN:: 9798400201943

ISSN:: 1934-7685

Pages:: 107

DOI:: https://doi.org/10.5089/9798400201943.002

Keywords
Context
Covid-19 Impact and Policy Response
Outlook and Risks
- Authorities’ Views
Policy Discussions
Macro-Structural
Post Financing Assessment23
- Authorities’ Views
Staff Appraisal
Annex I. Response to Past Fund Policy Advice
Annex II. COVID-19-Related Measures
Annex III. External Sector Assessment
Annex IV. Risk Assessment Matrix1/
Annex V. Supporting Inclusive Social Spending
References
Annex VI. Capacity Development Supporting Surveillance Priorities
Annex VII. COVID-19 and the Financial Sector Policy Response
Annex VIII. An Illustrative Adverse Scenario1

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^{Figure 1.}

Bangladesh: Significant Progress Since Independence

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Significant Progress in Accessing Basic Services

(Score, 0–100)

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Remaining Gaps in Transportation Infrastructure

(Score, 0–1 DO)

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Competitiveness by Category

(Score, 1 -100, 2019, the higher the score the more competitive the country is in the given category)

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Daily Positive Rate of COVID-19

(Percent of daily new testing, March 2020 to Dec 2021)

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^{Figure 2.}

Bangladesh: COVID-19 Crisis Disrupted the Growth Momentum

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Bangladesh Bank Policy Rates

(Monthly, EOP, Percent)

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Real GDP Forecast Revision After the Pandemic

(Jan 2020 WEO vs. Oct 2021 WEO forecasts, 2019 Real GDP=100)

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Fiscal Balance, Revenue and Spending

(Projections in percent of GDP)

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Current Account Balance and Reserve Coverage

(In percent of GDP)

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Government Revenue

(Percent of GDP)

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Personal Income Tax Productivity, 2019

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VAT Revenue, Standard Rate, and C-Efficiency, 2019

(in percent of GDP and percent)

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CIT Revenue, CIT Rate, and CIT-Productivity, 2019

(in percent of GDP and percent)

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Income Level and Revenue to GDP Ratio, 2019

(Percent)

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Capital Stock and Infrastructure Quality

(Percent of GDP and ranking)

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Contributions to Inflation

(y/y, in percent)

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Government T-Bill and T-Bond Rates

(In percent)

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Reserve Coverage

(In months of prospective imports)

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Non-Performing Loans, 2019

(In percent of gross loans)

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Return on Assets and Return on Equity, 2019

(Percent)

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Net Issuance of NSCs

(In Tk billion)

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Market Capitalization

(Percent of Nominal GDP, data as of last month of Fiscal Year)

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^{Figure 3.}

Bangladesh: Fiscal Priorities to Support Development Aspirations

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^{Figure 4.}

Bangladesh: Monetary and Financial Market Supported the Recovery

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^{Figure 5.}

Bangladesh: Banking Sector Challenges Persist

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^{Figure 6.}

Bangladesh: External Sector Remains Resilient

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^{Figure 7.}

Bangladesh: Governance Indicators ^1/

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Trade as Share of GDP

(Weighted average, 2019 GDP)

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Labor Productivity is Relatively Low

(GDP per person employed, constant 2017 PPP $)

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Climate vulnerability Index in LIDCs by Sector, 2019

(Higher values mean higher vulnerability)

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Climate Readiness and Vulnerability Indices, 2019

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^{Figure 8.}

Bangladesh: Expanding Exports and Boosting Productivity

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Current and Capital Spending

(Percent of GDP, latest value available)

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Social Safety Net Programs Spending

(in percent of GDP and in percent of total expenditure)

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Social Protection Beneficiaries and Lifecycle Groups

(in million people, FY2021 revised budget)

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Social Protection Budget and Lifecycle

(in percent of total. FY2021 Budget)

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Population Share by Broad Age Group, 2019

(in percent of total)

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Social Assistance Spending Composition

(latest available value)

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Social Assistance Coverage

(latest available value)

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Social Protection and Labor Programs Indicators

(latest value available, poorest quintile)

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Social Assistance Beneficiary Incidence

(latest available value, by quintile)

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Real GDP Growth Scenarios

(in percent of GDP)

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Fiscal Balance Scenarios

(in percent of GDP)

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Public Debt Scenarios

(in percent of GDP)

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^{Figure 1.}

Adverse Scenario Indicators of Public and Publicly Guaranteed External Debt, 2022–2032 ^1/

(In percent, unless otherwise mentioned)

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^{Figure 2.}

Adverse Scenario Indicators of Public Debt, 2022–2032 ^1/

(In percent)

Stimulus Lending and Refinancing Schemes
Export-oriented industries
	Tk 50 billion of loans to cover the salaries and allowances of workers in export-oriented industries for three months (April-June 2020), later increased by an additional Tk 30 billion for the month of July. The loan was interest free with a service charge of 2 percent.
Large and service sector industries
	Tk 300 billion for working capital to large industries and service sectors was enhanced to Tk 400 billion in October 2020. A refinance scheme, with an interest rate of 4 percent, was made available from BB for 50 percent of the loan with the rest funded from banks and NBFIs. The loans carried a 9 percent interest rate with the government subsidizing 4.5 percentage points of the interest cost -- the borrower pays the rest.
Refinance scheme for pre-shipment credit
	Tk 50 billion for a revolving “Pre-Shipment Credit Refinance Scheme” announced in April 2020 to facilitate pre-shipment export credit to the export-oriented industries. Loans are extended by banks at a 6 percent interest rates and can be refinanced 100 percent by the BB at 3 percent interest.
Agriculture and rural credit refinance scheme
	In April 2020 BB introduced a refinance scheme for Tk 50 billion from its own fund for horticulture, fisheries, poultry, dairy, and livestock. Loans under the scheme have a 4 percent interest rate and banks are refinanced at 1 percent from BB.
Agriculture and rural credit interest rate subsidy
	In April 2020 BB announced subsidizing 5 percent of the interest rate on agricultural loans for all crops and grains. This lowers interest rate to borrowers to 4 percent from 9 percent effective until June 20, 2021.
Financial inclusion refinance scheme
	In April 2020, “BB launched a refinance scheme of Tk 30 billion to generate sufficient income for the COVID-19 affected low-income professionals, farmers and micro/small businesses. This facility is being implemented through Micro Finance Institutions (MFIs). Banks get the fund from BB at 1 percent interest, but they lend it to MFIs at 3.5 percent and finally MFIs disburse loan to the affected groups at maximum 9 percent interest.”
CMSME stimulus package loans
	In April 2020, the government announced a stimulus package of Tk 200 billion for CMSMEs in the form of loans from Banks and NBFIs. The loans carry a 9 percent interest rate of which 5 percent is subsidized by the government and 4 percent is paid by the borrower. The BB also introduced a refinancing facility for 50 percent of the loan at a 4 percent interest rate.
	In June 2021, additional funds were announced for refinancing loans to CMSMEs, funded by the AIIB, for US$ 300 million. Under this facility, banks and financial institutions that lent to CMSMEs under the stimulus package can refinance the remaining 50 percent of the loan.
CMSME refinance schemes
	In May 2020, BB increased the size of three refinancing schemes for CMSMEs “Small Enterprise Refinance Scheme” from Tk 8.5 billion to Tk 15 billion, the “Refinance Scheme for Setting up Agro-based Product Processing Industries in Rural Areas” from Tk 7 billion to Tk 14 billion and the “Refinance Scheme for New Entrepreneurs in Cottage, Micro and Small Enterprise Sector” from Tk 0.50 billion to Tk 1 billion. The interest rate under these schemes to banks and financial institutions is 3 percent to be lent at an interest rate of 7 percent for borrowers.
Agricultural and rural credit policy for FY22
	In July 2020, BB announced the agricultural and rural credit policy and program of Tk 262.92 billion for the FY21, around 9 percent higher than the credit program in the previous year.
CMSME credit facility
	BB introduced a pre-finance credit facility for eligible RMG factories in November 2020 under social upgradation of SREUP for improving the safety/healthy/hygienic facility of workers and workplace environment to overcome the COVID-19 pandemic situation.
Agriculture and rural credit cap on interest rates
	Effective April 1, 2021 the interest rate on Agricultural and Rural Credit was capped at 8 percent (the previous cap was 9 percent).
Working Capital Loans for Salaries of Workers in the Tourism Sector
	On July 15, 2021, BB issued a circular regarding the Tk 10 billion package for working capital loans to pay the salaries of low-income staff in the tourism industry. The facility has an interest rate of 8 percent of which 4 percent is subsidized and a tenure of one year. Banks extending the working capital loan can refinance 50 percent of the disbursed amount from BB at 4 percent with a maturity of one year.
Stimulus Package
	Related to the stimulus package for the industrial and service sector impacted by COVID 19, BB issued a circular on July 28, 2021 instructing banks to make sure that the package is disbursed to a broad swath of the sector and to focus institutions that have not yet received the benefit.
Stimulus Package
	Related to the stimulus package for the industrial and service sector impacted by COVID 19, BB issued a circular on July 29, 2021 instructing that these institutions that received a partial benefit by June 30, 2021 can get the remaining amount as a working capital loan starting July 1, 2021 with December 21, 2019 as the base year. Institutions that did not receive a benefit can receive the working capital loan starting fiscal year 2021/2022 with December 31, 2020 as the base year.
Refinance scheme for Financial Inclusion
	On September 5, 2021 BB reconstituted a refinancing scheme with the title “Refinance Scheme for marginal/landless farmers, low-earning professionals, school-banking account holder and small businessmen of 10/50/100-Tk-account holder” to bolster financial inclusion given the COVID-19 pandemic. The size of the scheme was increased from Tk 2 billion to Tk 5 billion and will be effective for 5 years with the option of extension. The scheme is not open to defaulters or those who have benefitted from other schemes. The maximum amount an individual can borrow is Tk 500 thousand and for groups of 2 to 5 a maximum of Tk 400 thousand per person. The maximum interest rate to the borrower is 7 percent with a maturity of 3 years with 6 months grace. BB will charge 1 percent interest for refinance to the financing bank.
Special Loans and Advances for the CMSME Sector
	On September 9, 2021 BB issued directives on the implementation of the second phase of CMSME stimulus package of Tk 200 billion. BB will allocate the funds according to the previous year’s loans outstanding in CMSMEs excluding classified loans, and the implementation rate with discretion to increase or decrease the allocation. Defaulters and borrowers who have rescheduled three times are not eligible for the funds. At least 70 percent of the funds should be allocated to cottage small and micro industries (of which at least 65 percent for the production and service subsector with the remaining maximum 35 percent to the trading subsector) with the remaining 30 percent maximum for medium industries. At least 8 percent of the annual amount lent should be for women entrepreneurs. Loans cannot be used towards the previous loan, for the expansion of a business or for a new business. The interest rate is capped at 9 percent of which 5 percent is subsidized by the government. The interest rate subsidy will be available for one year from the issuance of the loan.
Refinance Scheme for the Agriculture Sector
	On September 14, 2021 BB introduced a refinance scheme for Tk 30 billion available until June 30, 2022. Banks participating receive 1 percent interest from BB and the maturity is 18 months. The interest rate of the loans extended is capped at 4 percent with a maturity of 12 months for crop farmers and 18 months for other sectors.
Government Guarantee
CMSME credit guarantee scheme
	In July 2020 BB set up a Credit guarantee Scheme (CGS) for Tk 20 billion for the Cottage, Micro and Small enterprises (CMS) seeking financing under the Tk 200 billion stimulus for CMSMEs who do not have adequate collateral. Subject to having adequate funds, participating banks and financial institutions get a maximum of 30 percent guarantee against their stipulated portfolio limit for working capital loans/investment in CMS sector. Within the portfolio guarantee cap, a single entrepreneur or borrower/investor can get up to a maximum of eighty (80) percent guarantee coverage. Regardless of the existing limit for loan/investment, the amount of loan/investment facility for guarantee under the scheme is a minimum of Tk 0.20 million and a maximum of Tk 5 million.
Prudential measures
Loan moratorium and classification freeze
	In March 2020, BB announced a loan moratorium and reclassification freeze until Sept 30, 2020, later extended to December 31, 2020 based on classification status on 1 January 2020. Borrowers willing to pay during this period were still able to and could improve the classification of their loans. BB instructed banks to transfer accrued interest/profit to the income account after approval from the relevant part of the bank and to maintain prescribed provisions against the loans/investments. Banks were advised to maintain 1 percent extra provision for all unclassified loans, including special mention account (SMA) for the year ending 31 December 2020.
Advance-deposit ratio (ADR) and investment-deposit ratio (IDR)
	In April 2020 BB increased the Advance-Deposit Ratio (ADR) for conventional banks to 87 percent from 85 percent and Investment-Deposit Ratio (IDR) for Islamic banks to 92 percent from 90 percent effective 15 April 2020.
Dividend distribution for Banks
	In May 2020 BB instructed banks not to distribute the cash dividend of the year 2019 before 30 September 2020. Relatedly, a guideline for dividend distribution was later issued by BB. In the end, BB relaxed the rules for the individual investors to protect their interest allowing dividend distribution to them before 30 September 2020.
CMSME Loan classification and provisioning
	The Loan classification and provisioning policy for Cottage, Micro and Small Enterprises (CMSME) was relaxed on 21 July 2020 to encourage bank lending in this sector.
NBFI maturity extension of loans and leases
	In August 2020 BB allowed the extension of maturity of the term loan/leases of FIs which is set at maximum 50 percent of the remaining time to maturity of the loan/leases.
Risk weights for alternative investments
	BB revised the risk weight in September 2020 from 150 percent to 100 percent for investment under alternative investment (Private Equity, Impact Fund etc.) including venture capital effective until 30 September 2022.
Consumer loan provisioning
	In October 2020, BB advised banks to maintain a general provision 2 percent (instead of 5 percent) against unclassified loans of all categories under consumer financing excluding home financing where the required rate of general provision remains 1 percent.
NBFI loan, lease, advance classification
	In November 2020 BB directed the NBFIs not to change the current status of loans/leases/advances as of 01 January 2020 till 31 December 2020 and during the period, the respective borrower is not treated as default.
End of loan moratorium and classification freeze
	The classification freeze in effect from January to December 2020 will not be extended from 1 January 2021. To facilitate the payment of the installments of existing unclassified loans on January 1, 2021, 50 percent of the remaining term can be extended on the basis of banker-customer relationship, not to exceed two years.
Repayment plan and classification for loans benefitting from the moratorium
	In March 2021, BB announced that “The imposed/levied interests, if unrealized/unpaid, on continuous loan(s)/investment(s) from 01 January 2020 to 31 December 2020, the tenure of which already expired and was not renewed by the bank under existing policy have been allowed to be paid in 6 (six) equal quarterly installments from March/2021 to June/2022. Such loan(s)/investment(s) shall not be deemed as classified until 30 June 2022, if regular installments from March/2021 to June/2022 along with the unpaid interest of 2020 are cleared. Demand or demand natured loan(s)/investment(s) have been permitted to be paid in 8 (eight) equal quarterly installments from March/2021 to June/2022. If the installments are paid on a quarterly basis, those loans/investments are not allowed to be declassified. However, if the installment of any quarter is not paid as per aforementioned criteria, such provision on loans/investments shall remain revoked from that quarter and those loans/investments shall have to be classified as per proper norms.”
Dividend declaration for financial institutions
	In February 2021, “BB declared that financial institutions which are enjoying deferral facilities from the Bangladesh Bank to adjust deficit without maintaining required provisions/ conservable resource shall not declare any form of cash dividend prior to maintaining entire provisions/ resource conservation. They are, however, allowed to declare 5 percent stock dividend upon approval of the Bangladesh Bank. For those of which the rate of classified loans is above 10 percent shall not announce any form of dividend without prior approval of the Bangladesh Bank. For those of which the CAR (Capital Adequacy Ratio) is below 10 percent and the rate of classified loans is above 10 percent shall be barred from the declaration of any form of dividend. The rate of cash dividend of the financial institutions shall have to be limited to 15 percent considering the overall situation [Through DFIM Circular Letter No. 04, dated March 22, 2021, financial institutions are allowed to declare total 30 percent dividend including 15 percent in cash considering the overall situation].”
Dividend declaration for Banks
	In February 2021, “BB announced that after maintaining required provisions and executing all other necessary expenses without deferral facility from the Bangladesh Bank in a calendar year under consideration, banks which shall be able to maintain 15 percent and above capital including 2.5 percent capital conservation buffer against risk-weighted assets are allowed to declare total 30 percent dividend including 15 percent in cash according to their financial capacity [through DOS Circular Letter No. 07, dated march 16, 2021, they are allowed to declare total 35 percent dividend including 17.50 percent in cash]. For banks of which capital shall be between 13.5 percent and less than 15 percent, total 25 percent dividend is allowed to declare including 12.5 percent in cash on approval of Bangladesh Bank. And for banks which shall be capable of maintaining minimum 11.875 percent capital conservation including minimum capital conservation buffer may declare total 15 percent dividend including maximum 7.5 percent in cash on approval of Bangladesh Bank. After maintaining required provisions and executing all other necessary expenses without deferral facility from the Bangladesh Bank in a calendar year under consideration, banks whose capital shall be minimum 12.5 percent and above including minimum capital conservation buffer against risk-weighted assets, total 12 percent dividend is allowed to disburse including 6 percent in cash on approval of Bangladesh Bank. For banks whose capital shall be between 11.875 percent and less than 12.5 percent, total 10 percent dividend is allowed to disburse including 5 percent in cash on approval of Bangladesh Bank. And for banks whose capital shall be between 11.875 percent and 10.625 percent, on approval of Bangladesh Bank, they are allowed to announce 5 (five) percent stock dividend.”
Ensuring Proper Use of COVID-19 Packages
	On August 2, 2021 BB advised financial institutions to monitor the effective implementation of stimulus packages regularly and instructed them to audit the funds through their internal audit.
Loan Classification
	On August 26, 2021 BB issued a circular directing banks not to classify loans/investments as long as 25 percent of the amounts due from January 2021 to December 2021 are repaid within the last working day of December 2021. The outstanding amount must be repaid within the next year and other amounts payable are due on a regular basis.

Stimulus Lending and Refinancing Schemes
Export-oriented industries
	Tk 50 billion of loans to cover the salaries and allowances of workers in export-oriented industries for three months (April-June 2020), later increased by an additional Tk 30 billion for the month of July. The loan was interest free with a service charge of 2 percent.
Large and service sector industries
	Tk 300 billion for working capital to large industries and service sectors was enhanced to Tk 400 billion in October 2020. A refinance scheme, with an interest rate of 4 percent, was made available from BB for 50 percent of the loan with the rest funded from banks and NBFIs. The loans carried a 9 percent interest rate with the government subsidizing 4.5 percentage points of the interest cost -- the borrower pays the rest.
Refinance scheme for pre-shipment credit
	Tk 50 billion for a revolving “Pre-Shipment Credit Refinance Scheme” announced in April 2020 to facilitate pre-shipment export credit to the export-oriented industries. Loans are extended by banks at a 6 percent interest rates and can be refinanced 100 percent by the BB at 3 percent interest.
Agriculture and rural credit refinance scheme
	In April 2020 BB introduced a refinance scheme for Tk 50 billion from its own fund for horticulture, fisheries, poultry, dairy, and livestock. Loans under the scheme have a 4 percent interest rate and banks are refinanced at 1 percent from BB.
Agriculture and rural credit interest rate subsidy
	In April 2020 BB announced subsidizing 5 percent of the interest rate on agricultural loans for all crops and grains. This lowers interest rate to borrowers to 4 percent from 9 percent effective until June 20, 2021.
Financial inclusion refinance scheme
	In April 2020, “BB launched a refinance scheme of Tk 30 billion to generate sufficient income for the COVID-19 affected low-income professionals, farmers and micro/small businesses. This facility is being implemented through Micro Finance Institutions (MFIs). Banks get the fund from BB at 1 percent interest, but they lend it to MFIs at 3.5 percent and finally MFIs disburse loan to the affected groups at maximum 9 percent interest.”
CMSME stimulus package loans
	In April 2020, the government announced a stimulus package of Tk 200 billion for CMSMEs in the form of loans from Banks and NBFIs. The loans carry a 9 percent interest rate of which 5 percent is subsidized by the government and 4 percent is paid by the borrower. The BB also introduced a refinancing facility for 50 percent of the loan at a 4 percent interest rate.
	In June 2021, additional funds were announced for refinancing loans to CMSMEs, funded by the AIIB, for US$ 300 million. Under this facility, banks and financial institutions that lent to CMSMEs under the stimulus package can refinance the remaining 50 percent of the loan.
CMSME refinance schemes
	In May 2020, BB increased the size of three refinancing schemes for CMSMEs “Small Enterprise Refinance Scheme” from Tk 8.5 billion to Tk 15 billion, the “Refinance Scheme for Setting up Agro-based Product Processing Industries in Rural Areas” from Tk 7 billion to Tk 14 billion and the “Refinance Scheme for New Entrepreneurs in Cottage, Micro and Small Enterprise Sector” from Tk 0.50 billion to Tk 1 billion. The interest rate under these schemes to banks and financial institutions is 3 percent to be lent at an interest rate of 7 percent for borrowers.
Agricultural and rural credit policy for FY22
	In July 2020, BB announced the agricultural and rural credit policy and program of Tk 262.92 billion for the FY21, around 9 percent higher than the credit program in the previous year.
CMSME credit facility
	BB introduced a pre-finance credit facility for eligible RMG factories in November 2020 under social upgradation of SREUP for improving the safety/healthy/hygienic facility of workers and workplace environment to overcome the COVID-19 pandemic situation.
Agriculture and rural credit cap on interest rates
	Effective April 1, 2021 the interest rate on Agricultural and Rural Credit was capped at 8 percent (the previous cap was 9 percent).
Working Capital Loans for Salaries of Workers in the Tourism Sector
	On July 15, 2021, BB issued a circular regarding the Tk 10 billion package for working capital loans to pay the salaries of low-income staff in the tourism industry. The facility has an interest rate of 8 percent of which 4 percent is subsidized and a tenure of one year. Banks extending the working capital loan can refinance 50 percent of the disbursed amount from BB at 4 percent with a maturity of one year.
Stimulus Package
	Related to the stimulus package for the industrial and service sector impacted by COVID 19, BB issued a circular on July 28, 2021 instructing banks to make sure that the package is disbursed to a broad swath of the sector and to focus institutions that have not yet received the benefit.
Stimulus Package
	Related to the stimulus package for the industrial and service sector impacted by COVID 19, BB issued a circular on July 29, 2021 instructing that these institutions that received a partial benefit by June 30, 2021 can get the remaining amount as a working capital loan starting July 1, 2021 with December 21, 2019 as the base year. Institutions that did not receive a benefit can receive the working capital loan starting fiscal year 2021/2022 with December 31, 2020 as the base year.
Refinance scheme for Financial Inclusion
	On September 5, 2021 BB reconstituted a refinancing scheme with the title “Refinance Scheme for marginal/landless farmers, low-earning professionals, school-banking account holder and small businessmen of 10/50/100-Tk-account holder” to bolster financial inclusion given the COVID-19 pandemic. The size of the scheme was increased from Tk 2 billion to Tk 5 billion and will be effective for 5 years with the option of extension. The scheme is not open to defaulters or those who have benefitted from other schemes. The maximum amount an individual can borrow is Tk 500 thousand and for groups of 2 to 5 a maximum of Tk 400 thousand per person. The maximum interest rate to the borrower is 7 percent with a maturity of 3 years with 6 months grace. BB will charge 1 percent interest for refinance to the financing bank.
Special Loans and Advances for the CMSME Sector
	On September 9, 2021 BB issued directives on the implementation of the second phase of CMSME stimulus package of Tk 200 billion. BB will allocate the funds according to the previous year’s loans outstanding in CMSMEs excluding classified loans, and the implementation rate with discretion to increase or decrease the allocation. Defaulters and borrowers who have rescheduled three times are not eligible for the funds. At least 70 percent of the funds should be allocated to cottage small and micro industries (of which at least 65 percent for the production and service subsector with the remaining maximum 35 percent to the trading subsector) with the remaining 30 percent maximum for medium industries. At least 8 percent of the annual amount lent should be for women entrepreneurs. Loans cannot be used towards the previous loan, for the expansion of a business or for a new business. The interest rate is capped at 9 percent of which 5 percent is subsidized by the government. The interest rate subsidy will be available for one year from the issuance of the loan.
Refinance Scheme for the Agriculture Sector
	On September 14, 2021 BB introduced a refinance scheme for Tk 30 billion available until June 30, 2022. Banks participating receive 1 percent interest from BB and the maturity is 18 months. The interest rate of the loans extended is capped at 4 percent with a maturity of 12 months for crop farmers and 18 months for other sectors.
Government Guarantee
CMSME credit guarantee scheme
	In July 2020 BB set up a Credit guarantee Scheme (CGS) for Tk 20 billion for the Cottage, Micro and Small enterprises (CMS) seeking financing under the Tk 200 billion stimulus for CMSMEs who do not have adequate collateral. Subject to having adequate funds, participating banks and financial institutions get a maximum of 30 percent guarantee against their stipulated portfolio limit for working capital loans/investment in CMS sector. Within the portfolio guarantee cap, a single entrepreneur or borrower/investor can get up to a maximum of eighty (80) percent guarantee coverage. Regardless of the existing limit for loan/investment, the amount of loan/investment facility for guarantee under the scheme is a minimum of Tk 0.20 million and a maximum of Tk 5 million.
Prudential measures
Loan moratorium and classification freeze
	In March 2020, BB announced a loan moratorium and reclassification freeze until Sept 30, 2020, later extended to December 31, 2020 based on classification status on 1 January 2020. Borrowers willing to pay during this period were still able to and could improve the classification of their loans. BB instructed banks to transfer accrued interest/profit to the income account after approval from the relevant part of the bank and to maintain prescribed provisions against the loans/investments. Banks were advised to maintain 1 percent extra provision for all unclassified loans, including special mention account (SMA) for the year ending 31 December 2020.
Advance-deposit ratio (ADR) and investment-deposit ratio (IDR)
	In April 2020 BB increased the Advance-Deposit Ratio (ADR) for conventional banks to 87 percent from 85 percent and Investment-Deposit Ratio (IDR) for Islamic banks to 92 percent from 90 percent effective 15 April 2020.
Dividend distribution for Banks
	In May 2020 BB instructed banks not to distribute the cash dividend of the year 2019 before 30 September 2020. Relatedly, a guideline for dividend distribution was later issued by BB. In the end, BB relaxed the rules for the individual investors to protect their interest allowing dividend distribution to them before 30 September 2020.
CMSME Loan classification and provisioning
	The Loan classification and provisioning policy for Cottage, Micro and Small Enterprises (CMSME) was relaxed on 21 July 2020 to encourage bank lending in this sector.
NBFI maturity extension of loans and leases
	In August 2020 BB allowed the extension of maturity of the term loan/leases of FIs which is set at maximum 50 percent of the remaining time to maturity of the loan/leases.
Risk weights for alternative investments
	BB revised the risk weight in September 2020 from 150 percent to 100 percent for investment under alternative investment (Private Equity, Impact Fund etc.) including venture capital effective until 30 September 2022.
Consumer loan provisioning
	In October 2020, BB advised banks to maintain a general provision 2 percent (instead of 5 percent) against unclassified loans of all categories under consumer financing excluding home financing where the required rate of general provision remains 1 percent.
NBFI loan, lease, advance classification
	In November 2020 BB directed the NBFIs not to change the current status of loans/leases/advances as of 01 January 2020 till 31 December 2020 and during the period, the respective borrower is not treated as default.
End of loan moratorium and classification freeze
	The classification freeze in effect from January to December 2020 will not be extended from 1 January 2021. To facilitate the payment of the installments of existing unclassified loans on January 1, 2021, 50 percent of the remaining term can be extended on the basis of banker-customer relationship, not to exceed two years.
Repayment plan and classification for loans benefitting from the moratorium
	In March 2021, BB announced that “The imposed/levied interests, if unrealized/unpaid, on continuous loan(s)/investment(s) from 01 January 2020 to 31 December 2020, the tenure of which already expired and was not renewed by the bank under existing policy have been allowed to be paid in 6 (six) equal quarterly installments from March/2021 to June/2022. Such loan(s)/investment(s) shall not be deemed as classified until 30 June 2022, if regular installments from March/2021 to June/2022 along with the unpaid interest of 2020 are cleared. Demand or demand natured loan(s)/investment(s) have been permitted to be paid in 8 (eight) equal quarterly installments from March/2021 to June/2022. If the installments are paid on a quarterly basis, those loans/investments are not allowed to be declassified. However, if the installment of any quarter is not paid as per aforementioned criteria, such provision on loans/investments shall remain revoked from that quarter and those loans/investments shall have to be classified as per proper norms.”
Dividend declaration for financial institutions
	In February 2021, “BB declared that financial institutions which are enjoying deferral facilities from the Bangladesh Bank to adjust deficit without maintaining required provisions/ conservable resource shall not declare any form of cash dividend prior to maintaining entire provisions/ resource conservation. They are, however, allowed to declare 5 percent stock dividend upon approval of the Bangladesh Bank. For those of which the rate of classified loans is above 10 percent shall not announce any form of dividend without prior approval of the Bangladesh Bank. For those of which the CAR (Capital Adequacy Ratio) is below 10 percent and the rate of classified loans is above 10 percent shall be barred from the declaration of any form of dividend. The rate of cash dividend of the financial institutions shall have to be limited to 15 percent considering the overall situation [Through DFIM Circular Letter No. 04, dated March 22, 2021, financial institutions are allowed to declare total 30 percent dividend including 15 percent in cash considering the overall situation].”
Dividend declaration for Banks
	In February 2021, “BB announced that after maintaining required provisions and executing all other necessary expenses without deferral facility from the Bangladesh Bank in a calendar year under consideration, banks which shall be able to maintain 15 percent and above capital including 2.5 percent capital conservation buffer against risk-weighted assets are allowed to declare total 30 percent dividend including 15 percent in cash according to their financial capacity [through DOS Circular Letter No. 07, dated march 16, 2021, they are allowed to declare total 35 percent dividend including 17.50 percent in cash]. For banks of which capital shall be between 13.5 percent and less than 15 percent, total 25 percent dividend is allowed to declare including 12.5 percent in cash on approval of Bangladesh Bank. And for banks which shall be capable of maintaining minimum 11.875 percent capital conservation including minimum capital conservation buffer may declare total 15 percent dividend including maximum 7.5 percent in cash on approval of Bangladesh Bank. After maintaining required provisions and executing all other necessary expenses without deferral facility from the Bangladesh Bank in a calendar year under consideration, banks whose capital shall be minimum 12.5 percent and above including minimum capital conservation buffer against risk-weighted assets, total 12 percent dividend is allowed to disburse including 6 percent in cash on approval of Bangladesh Bank. For banks whose capital shall be between 11.875 percent and less than 12.5 percent, total 10 percent dividend is allowed to disburse including 5 percent in cash on approval of Bangladesh Bank. And for banks whose capital shall be between 11.875 percent and 10.625 percent, on approval of Bangladesh Bank, they are allowed to announce 5 (five) percent stock dividend.”
Ensuring Proper Use of COVID-19 Packages
	On August 2, 2021 BB advised financial institutions to monitor the effective implementation of stimulus packages regularly and instructed them to audit the funds through their internal audit.
Loan Classification
	On August 26, 2021 BB issued a circular directing banks not to classify loans/investments as long as 25 percent of the amounts due from January 2021 to December 2021 are repaid within the last working day of December 2021. The outstanding amount must be repaid within the next year and other amounts payable are due on a regular basis.

		Scenario	FY22	FY23	FY24	FY25	FY26
Real GDP		Baseline	6.5	7.2	7.2	7.2	7.1
	(Annual percent change)	Adverse	3.1	4.6	7.2	7.2	7.1
CPI inflation (end of period)		Baseline	5.8	5.7	5.4	5.4	5.4
	(Annual percent change)	Adverse	5.9	5.7	5.5	5.5	5.5
Exports of goods and services		Baseline	43,177	44,602	46,076	49,515	53,212
	(In US$ million)	Adverse	41,131	42,373	46,076	49,515	53,212
Imports of goods and services		Baseline	-67,800	-70,979	-73,027	-77,613	-82,804
	(In US$ million)	Adverse	-69,563	-72,870	-72,291	-76,767	-81,893
Current account balance		Baseline	-2.4	-2.6	-2.5	-2.5	-2.5
	(In percent of GDP)	Adverse	-3.4	-3.8	-2.5	-2.4	-2.5
Gross international reserves		Baseline	47,732	45,508	43,443	42,075	42,597
	(In US$ million)	Adverse	43,871	37,249	35,848	35,191	36,404
Overall fiscal balance		Baseline	-6.1	-5.7	-5.4	-5.0	-5.0
	(In percent of GDP)	Adverse	-7.2	-6.5	-5.8	-5.4	-5.4
Public sector total debt		Baseline	42.5	42.7	42.6	42.3	42.1
	(In percent of GDP)	Adverse	44.8	46.5	46.3	45.9	45.6
Outstanding obligations to the Fund
In percent of exports of goods and services		Baseline	2.1	1.7	1.1	0.5	0.3
		Adverse	2.2	1.8	1.1	0.5	0.3
In percent of gross international reserves		Baseline	2.2	2.0	1.4	0.7	0.5
		Adverse	2.4	2.5	1.6	0.8	0.6

Topics

Countries

Series

About

Resources

Abstract

Context

Covid-19 Impact and Policy Response

Outlook and Risks

Authorities’ Views

Policy Discussions

A. Creating Fiscal Space for Growth-Enhancing and Inclusive Spending

Authorities’ Views

B. Monetary and Exchange Rate Policy to Foster Macroeconomic Stability

Authorities’ Views

C. Addressing Financial Sector Vulnerabilities to Mobilize Productive Investment

Authorities’ Views

D. Developing Capital Markets to Support Higher Investment and Growth

Authorities’ Views

Macro-Structural

A. Strengthening Governance to Boost Investment

Authorities’ Views

B. Boosting Exports and Productivity to Generate Good-Paying Jobs

Authorities’ Views

C. Tackling Climate Challenge to Build Resilience and Competitiveness

Authorities’ Views

Post Financing Assessment23

Authorities’ Views

Staff Appraisal

Annex I. Response to Past Fund Policy Advice

Annex II. COVID-19-Related Measures

Annex III. External Sector Assessment

Annex IV. Risk Assessment Matrix1/

Annex V. Supporting Inclusive Social Spending

References

Annex VI. Capacity Development Supporting Surveillance Priorities

Background

Monetary and Financial Sector

Fiscal Sector

AML/CFT

Data

Training

Annex VII. COVID-19 and the Financial Sector Policy Response

Financial Policy Measures Taken to Buffer the Impact of the COVD-19 Shock

Evaluating the COVID-19 Measures and Assessing their Impact on the Banking Sector

Exiting from COVID-19 Measures: Best Practices

Annex VIII. An Illustrative Adverse Scenario1

Same Series

Other IMF Content

Other Publishers

Asian Development Bank

The World Bank

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Table of Contents

Headings

Figures

Metrics

Foresee

Post Financing Assessment^²³

Annex IV. Risk Assessment Matrix^1/

Annex VIII. An Illustrative Adverse Scenario^¹